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Many small business owners don’t have a succession plan in place. This could leave them unprepared for retirement, disability or death.

Whether your clients will look to their business to provide retirement income, dream of one day passing it on to their children or wish to sell it, this article can help. Prepare your clients, ask the right questions and develop the right plan to suit their needs.

What is a business succession plan?

A business succession plan determines how a business will be transferred to others and outlines the steps necessary to prepare for the transition.

The plan will affect your client, their family, employees, clients, suppliers, creditors and others. A good succession plan ensures their wishes will be carried out if they die suddenly or can no longer run the business due to illness or injury. It can also help ease them into retirement and provide a retirement income.

Should your clients have a business succession plan?

If they own a business, the answer is yes. When building and running a business, thoughts of selling it or passing it on to others are often back of mind.

However, that day will eventually come, and the earlier they plan, the more successful the transition will be. Business succession planning is really an extension of personal estate planning but with a focus on the future operations of the business. Planning for retirement, planning for heirs and employees at death, and planning for the person who takes over the reins of your business are closely tied together. However, your planning objectives in each of these situations may be different.

Six steps to precede a successful plan

Every business and personal planning situation is different which makes every succession plan unique. Taking the time to think through these six key steps with your clients will help you understand their succession planning priorities.

1. Assess their current situation
   Determine the potential profitability of the business if your client were no longer there to run it and consider the steps that would be required to maintain profitability.
2. Understand the goals for your client and their family
   Consider what business succession plan will be best for your client and their family. Is the goal to have a family member continue to own and manage the business? Or perhaps own the business with outside management assistance? They might wish to sell the business to key employees or a third party. Alternatively, they might wish to sell parts of the business or liquidate business assets.
3. Identify and prioritize action plans
   Considering your client’s goals and situation, present an outline of the courses of action available to them. Work with them to ensure they understand what will happen under each plan’s structure and how it will affect their business and successors.
4. Select the best action plan
   Once all options have been considered, your client must decide which plan to proceed with. As an advisor you can help them make an informed decision to protect their interests.
5. Document decisions
   Advise your client to put all business succession planning in writing. You can help your client review, adjust and file their plan for safekeeping.
6. Implement the plan
   Parts of the plan will likely not need to be implemented for many years. However, some items may require immediate attention. Insurance coverage can be used to fund a buy-sell agreement, train a child successor in key business areas, introduce successors to key contacts and update wills and buy-sell agreements. You can help with some of these items and refer them to lawyers and other professionals who may be required depending on the selected plan.