Succession Planning: Who Runs the Business After You?

The Question Nobody Wants to Answer

What happens to your business if you get hit by a bus tomorrow? It's a morbid question, but a necessary one. For most small businesses, the honest answer is: chaos.

Succession planning isn't just about retirement. It's about resilience. A business that depends entirely on one person is fragile. A business with a succession plan is durable, more valuable, and frankly, less stressful to own.

Succession vs. Exit Planning

These overlap but aren't the same thing.

Exit planning is about how you leave and what you get financially. Succession planning is about who takes over and whether they're ready.

You might sell to an outsider (exit, no internal succession), hand the reins to your operations manager (succession), or do both (your successor buys you out over time).

Identifying Potential Successors

Family Members

The most common succession path for family businesses. But "common" doesn't mean "easy." Ask honestly:

• Does this person actually want to run the business?
• Do they have the skills, or can they develop them in time?
• Will other family members accept their leadership?
• Can you separate the family relationship from the business relationship?

Census Bureau data shows that roughly 30% of family businesses survive into the second generation, and only 12% make it to the third. The failure rate isn't about capability; it's about preparation.

Key Employees

A trusted operations manager, lead technician, or office manager might be a natural successor. They know the business, the customers, and the culture. The challenges are different:

• Can they afford to buy the business? (Seller financing may be needed)
• Can they shift from "doing the work" to "running the business"?
• Will other employees respect their authority in the new role?

External Candidates

Sometimes the right successor doesn't exist internally. You may need to hire someone specifically to develop into the leadership role over 2-3 years. This is more common in professional services and contracting firms.

Developing Your Successor

Finding someone is step one. Preparing them is the real work.

Phase 1: Shadow and Learn (6-12 months)

Your successor sits in on every major decision. They attend meetings with your accountant, your attorney, your biggest clients. They see the full picture of what running the business requires.

Phase 2: Delegated Authority (12-24 months)

Start handing over real responsibilities with real consequences:

• Let them manage the budget for a department or project
• Give them hiring and firing authority for their team
• Have them handle a key client relationship independently
• Let them negotiate a vendor contract

The goal is for them to make decisions, including some wrong ones, while you're still around to mentor.

Phase 3: Trial Leadership (6-12 months)

Step away. Take a month off and see what happens. Then take two months. The gaps that emerge during your absence are exactly what still needs to be addressed.

Phase 4: Full Transition

The formal handover. This might happen gradually or on a specific date, but by this point, the business should already be running smoothly without your daily involvement.

The Emergency Succession Plan

You need a basic emergency plan right now, even if full succession is years away. This document should cover:

• Who makes decisions if you're suddenly unable to (illness, injury, death)
• Key contacts -- accountant, attorney, insurance agent, bank, top 10 customers
• Financial access -- who can sign checks, access accounts, approve expenses
• Critical processes -- how payroll runs, how jobs get scheduled, how bills get paid
• Insurance details -- key person insurance, life insurance, disability coverage

Keep this document with your attorney and a trusted person. Update it annually.

Legal and Financial Structure

Succession creates legal and financial complexity. You'll need professional help with:

Buy-sell agreements: These define what happens to ownership when an owner leaves, dies, or becomes disabled. If you have partners, this is non-negotiable.

Valuation methodology: Agree in advance on how the business will be valued at transition. This prevents disputes later.

Funding mechanisms: How will the successor pay for the business? Options include:

• Seller financing (you carry the note)
• Earn-outs tied to post-transition performance
• SBA loans for business acquisition
• Life insurance proceeds (for death-triggered transitions)

Tax planning: The structure of the transfer has major tax implications for both parties. A gradual stock transfer has different consequences than a lump-sum sale. Start planning with your tax advisor early.

The Emotional Side

This might be the hardest part. The business is your identity. You built it. Handing it over feels like losing a part of yourself.

Acknowledge that. Plan for what comes next in your life, not just in the business. Owners who have something to retire to (not just from) handle the transition better.

Start the conversation now. With your family, your team, your advisors. The best successions happen over years, not weeks.