Every business needs a succession plan: Here's how to get started

If you want to be sure that your business continues to thrive after your retirement, illness, or death, now is the perfect time to begin drawing up a succession plan. Think of this document as being similar to doing estate planning for yourself, with the difference being that a succession plan ensures that your enterprise will experience as seamless a transition as possible once you are no longer able to manage it.

With a proper business succession plan in place, you can handpick the person or company who will take over your business and make sure they are well equipped to handle matters right out of the gate. Moreover, if your business changes hands because of your death, having your share of the business already appraised means your estate can be settled more quickly—a benefit for both your business and your loved ones.

There is no one correct way to write a business succession plan. In fact, you have several options regarding what will happen to your enterprise when you're no longer running it. You may choose to sell it outright in return for cash or assets, transfer your interest to a trust or annuity before your death, or establish a partnership with family members, to which you can then transfer the business. All of these options are complicated legal maneuvers for which professional advice is recommended.

If you have decided to pass the business on to someone else, however, there are some general steps you can follow as you develop the succession plan.

1. Decide on your goals

When starting to plan for the future of your business without you, it is important to zero in on your view for what it should look like. Do you want your business to stay predominantly like it is or do you want whomever takes over to have the freedom to expand it as they see fit?

Another important question to address is whether you plan on handing over the business at retirement or whether your plan is largely geared toward a change of hands because of your incapacitation or death. If you are planning on retiring, it is also important to incorporate some retirement planning into your goals, particularly regarding the time frame.

2. Choose your successor

Once you have a general idea of what you want for your business, your choice of successor will probably become clearer. Perhaps because of your specific goals or because you don't have someone in mind to take over, you may decide to have a different company take over your business. In this case, you should research the best company to fit your needs and desires for the future of your enterprise, knowing that you may not have too much control after you cede the reins.

On the other hand, searching for an individual to take over requires considering many more personal qualities. Of course you want a reliable and responsible individual with strong leadership skills, but it can be difficult to separate emotions from more practical considerations, especially when close family members are involved. If this could be an issue, you should strongly consider reviewing outside consultants to help decide what's best for you.

3. Work together on future goals

Once you have chosen a successor, together you can devise future strategies for your business. You should identify your successor's primary duties and then conduct a training period so they can be exposed to those areas.

Keep in mind that because this person is going to be in charge someday, giving them increased responsibilities now can not only help you see how they would handle certain situations but also help instill confidence that they will be ready to do it all on their own in the future. To better ensure you've made the right choice, you may wish this training period to last for an extended period of time before you give up control entirely.

4. Ask for help

There's no question that establishing a business succession plan is a serious undertaking, so seeking professional advice—especially regarding drawing up legal agreements, such as a buy/sell contract—is highly recommended. A proper business succession plan has all of the necessary legal documents prepared and ready for execution whenever it needs to be put into effect, whether it's by choice or by circumstance.

Remember, too, that, just as you should with estate planning documents, you must make sure your business succession plan is always up to date. If life events such as births, deaths, marriages, or divorces would impact your plan, it's time to revisit it and make sure it's still what you want.

Overall, developing a succession plan for your business now, while your enterprise is in a good, solid place, means you can take your time and make informed decisions. Once you have decided on your successor and have a clear path to having them take over, you can rest easier knowing that all of your hard work building your business won't simply fall by the wayside once you're gone—and that kind of peace of mind is priceless.