How to Prepare Your Business Succession Plan

As with most business owners, concentrating on positive cash flow in the stable balance sheet takes up a lot of time and energy. This amounts to decades of hard work. Some of the most successful and earnest business owners are so involved in the intricacies of their business that it is hard to imagine a time of retirement, and therefore they fail to prepare for a successful succession strategy. In fact, recent statistics show that at least 75% of small business owners have no exit strategy. Further, a succession plan does necessarily mean retirement. It can also mean transferring your business interests to members of your family, liquidating assets, or completely selling your business to an outside party.

Pre-Planning Process

There are many things to consider in the planning process. This process should begin at least two years prior to your targeted date to complete the succession of your business. During this planning process you should conduct a market analysis to help you determine if there are any potential buyers, and what those potential buyers are looking to acquire. A market analysis can also help you determine what valuations of your business are reasonable and what you can do to maximize the valuation of your business. There are also multiple exit strategies to consider beyond straight sale of the business to an outside party. This can include the sale to an ESOP or sale to a private equity group. Use the planning time to determine which exit strategy is best for you.

You should also look internally in the company to see what you could do to improve your company’s appeal to potential buyers. Some things to consider when improving your company’s appeal would be to determine if you have the correct insurance in place; have your financials been audited; are you able to keep your key customers; do your contracts contain a change of control provision; are your business processes efficient and up to speed; and what threats, if any, does your company face? Once you have identified any potential issues within your company, going forward you should focus on correcting any issues and fine-tuning attractive portions of your company to make it as attractive to potential buyer as possible. Lastly, during the planning process you should review your financials and make an estate plan to make sure that you have enough assets to achieve your retirement goals or to move onto the next phase of your career.

Finalizing Your Plan

Once you have completed the pre-planning stage, within two years of your succession plan you should grow your company to maximize its attractiveness for sale. If you completed a market analysis in your pre-planning stage, you should revisit that analysis and have it updated since it is most likely at least a year old at this point. You should also continue to streamline and improve any business practices to help encourage potential buyers that purchasing your company is a sound business decision.

During the finalization of your plan you should also choose a successor. To find a successor, it may be helpful to look within your own employees to determine who would have the leadership skills to run your company. Some business owners also look within their family to see if there is someone suitable to pick up where they left off. If you are having trouble coming up with a proper successor, you can also seek out the advice of your Board of Directors, or set up a search committee to help you select a successor.


Once you find a suitable successor it is time to enter into negotiations. Negotiations can be a stressful time and can occupy your attention away from maximizing your company’s growth. Do not forget, however, that running your company is still your top priority. Also confidentiality is key during negotiations. This includes confidentiality among your partners and your advisory team, as well as with the public. You should anticipate the key points that you believe will surface during the negotiations, whether that is how the purchase will be made or whether you will be subject to any type of SEC regulations.

After the Transaction

Hopefully during your pre-planning, you have prepared yourself for the transition out of running your company. Whether your time after the transaction means retirement or taking on another career, you should continue to finalize your future plans.