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Guide to Business Succession Planning

Every business owner wants to see their company succeed long after they step away, so they need a well-crafted business succession plan to make that possible. This guide covers the importance of business succession planning, how to select the right successor, and how to prepare a plan that protects your business, employees, and your long-term vision. It also addresses how an experienced business law attorney can help you achieve your succession planning goals.

What Is Succession Planning?

Succession planning prepares your business for the future by identifying potential situations that could impact ownership if a key person leaves, dies, or is unable to continue in their role. It begins with understanding your values, your priorities as a business owner, and the risks that could disrupt leadership or operations. From there, you develop a plan that addresses those challenges to ensure the business continues without disruption.

Why Is Business Succession Planning Important for Business Owners?

Business succession planning is essential for owners seeking to secure their company’s future. By identifying and preparing future leaders or outlining an ownership transfer, it ensures the business continues to run smoothly when key leaders depart.
Succession planning clarifies responsibilities, reduces conflicts, and lowers the risk of disputes among family members or partners. Employees, clients, and investors gain confidence knowing that leadership changes will not interrupt operations. It gives owners peace of mind, knowing the company’s future is protected and that their goals and wishes will be respected.

Did You Know?

There is no one-size-fits-all solution for business succession planning. Each plan can differ greatly due to business dynamics.

What Happens to a Business Without a Succession Plan?

If an owner or key leader is unable to continue in their role, a business without a formal succession plan can face sudden instability. When no plan or legal directive exists, state laws may govern the distribution of ownership and management interests. This rarely serves the company’s unique needs, values, or daily operations, often leading to a slow, confusing, and inconsistent transition that is inconsistent with the founder’s goals. Potential issues that may arise include the following:

Family disputes over ownership or decision-making
Confusion over leadership or power struggles
Disruption of business operations due to legal processes
Misalignment with the founder’s vision or values
Loss of employee morale and retention challenges
Financial strain from disrupted operations or legal costs

When business owners don’t go through the effort to create their own succession plan, what happens is the state generally has their own succession plan for you. Almost always, that is not the outcome that we want.

Landon Long

Partner, Attorney

How Do You Choose the Right Successor for Your Business?

Choosing the right successor is one of the most challenging decisions a business owner can make. Every business is unique, and there is no universal formula for selecting the next leader. Owners should not assume that family members, including children, automatically want or are prepared for the role. Instead, evaluate all potential candidates objectively, focusing on their skills, values, and temperament to ensure they can lead the business effectively while preserving its culture.

If you cannot identify a suitable candidate, consider alternatives such as hiring externally or exploring a sale or partnership. Once you make a decision, communicate it clearly and thoughtfully to all stakeholders. Clear communication prevents misunderstandings, sets expectations, and supports a smooth transition. This approach helps maintain business continuity and relationships, ensuring leadership changes do not disrupt operations or compromise the company’s stability.

Why Do Some Business Succession Plans Fail?

Business succession plans can fail for several reasons, including the failure to account for key considerations or neglecting to regularly review the plan. Business owners may assume transitions will occur naturally, overlook professional guidance, or fail to communicate expectations clearly. Even well-crafted plans can struggle if the successors aren’t properly prepared or stakeholders are left in the dark.
Common reasons plans may fail include the following:

No formal, written plan in place
Plans not reviewed or updated regularly
Owners ignore legal, financial, or tax advice
Poor communication among family, partners, or staff
Unclear leadership criteria or roles
Conflicts or resistance among stakeholders
Lack of successor training or mentoring

What Documents Are Needed for a Business Succession Plan?

A well-prepared business succession plan relies on several key documents to ensure a smooth transfer of ownership and leadership. Key documents include:

Ownership Transition Agreement: This document outlines who will assume control of the business, the conditions of the transfer, and any buyout or payment terms, thereby reducing potential conflicts among family members or partners.
Operating or Partnership Agreement: This document clarifies succession roles, decision-making authority, and procedures for handling unexpected events to maintain consistent operations.
Power of Attorney: This document grants trusted individuals the authority to manage legal and financial matters on behalf of the owner if they become incapacitated.
Estate Plans: A well-crafted estate plan will coordinate asset distribution to support the business’s long-term success and minimize tax consequences.
Insurance Policies: Life, disability, and key-person insurance provide financial protection and stability during leadership transitions.

What Is the Step-By-Step Process of Creating an Effective Business Succession Plan?

Developing a business succession plan requires careful attention to both legal and operational details. An attorney can help navigate these complexities and ensure clarity throughout the process. Key steps include the following:

Attorney consultation: Meet with an experienced business lawyer to begin the succession planning process and establish a clear framework.
Identify key players: Determine who will hold essential roles during leadership transitions to ensure continuity and stability.
Set goals: Define what you want the plan to achieve for the business, employees, and stakeholders.
Gather documents: Assemble all essential business, legal, and financial documents to guide planning and decisions.
Review for pitfalls: Work with your attorney to identify potential challenges or gaps and address them proactively.
Final meeting: Review and sign all documents.
Communication: Communicate the succession plan to all key stakeholders and confirm everyone involved understands their responsibilities.

Stay actively involved by asking questions to fully understand each step. Revisit the plan every three to five years to ensure it continues to reflect the business’s evolving needs and circumstances.

When you’re creating a business succession plan, I think the easiest way to get from I have nothing in place to I can sleep well at night because I know I’m taken care of is you’ve gotta start.

Landon Long

Partner, Attorney

Ensure That Your Business Is Set up for the Future

Planning for the future of your business does not have to feel confusing or stressful. An experienced business law attorney can provide the legal help you need to ensure your business goals are met.

At Evans & Davis, we serve a diverse range of clients, including entrepreneurs, family-owned and closely held companies, partnerships, joint ventures, and public corporations. Our team supports businesses at every stage, from start-up to succession, helping them grow and adapt. We focus on delivering a comprehensive plan, so every client leaves more confident and better prepared than when they started.