Seven Steps to Successful Succession

One of my practice areas is business succession planning. It is a topic that is close to my heart, since my family has run a successful small business for many years.
I developed a graphic on my website titled: The Seven Steps to Business Succession Planning. It is a starting point for small business owners who are thinking (and hopefully doing some strategizing) about what they will do with their business in the future.
Keep in mind that “succession” can mean many different things to different people. It might include the eventual sale of the business; the closure of the business; the division of a business; the transfer of ownership; the temporary handing over of the day-to-day management; the transition from private to public company; the sale of shares; the list goes on.
For the purpose of this article, let’s keep it simple and use the term succession as the “handing over of the reins” to someone else to control your business. The actual definition of “small business” can also be complicated. Indeed, the Small Business Administration ( has an entire complex table (for different industry classifications) to define “small business”.
Using their basic definition a small business is “one that is independently owned and operated, is organized for profit and is not dominant in its field.” Most would agree that IBM, given this definition, does not fit the category of “small business.”

Now to the Seven Steps…Some of which are strategic, some emotional

Step 1. Thinking. The small business owner needs to take time to THINK. Reflect on the reasoning for planning the owner’s “exit” from the business. Yes, succession planning is like an exit strategy. It is a plan for the day you leave your business (either totally or partially; permanently or temporarily). It can also serve as an emergency management plan – answering the question: What will happen and who will take over if you are not there? A good plan provides an order and a guide to minimize disruption. Some reasons for leaving a business include: health; age; relocation; change of lifestyle; business downturn; financial pressures; retirement; desire to move into another business endeavor; taking a new direction; pending marriage/divorce? The list of possible reasons might be long and complicated, but try to identify the core reasons for any (future) decision(s). One idea I read about, a small business owner wrote an annual letter to key people in his company. The annual letter outlined the future year’s vision for the firm. These letters later served as a basis for the succession planning process.

Step 2. Meeting. Once your own thoughts/decisions are clarified, set up face-to-face meetings with those involved in the succession process. This might involve immediate or extended family; business partners; shareholders; stakeholders; investors. Be prepared to state clearly your reasoning for the need of a succession plan; the new direction; the new strategy. Consider having an organization chart prepared. This might be the time to get the advice of other professionals: accountants, investment/insurance advisors; valuators. Decide: What is my business really worth at this moment? Will the business need to be restructured? Will I require future income from the business? This may be the time to call in a qualified attorney to discuss the legal issues of succession. Will there be a formal/legal document outlining the terms of succession? Will you be retaining a share of the business? Will there be employee/employment contracts? If your business is a partnership, get the partners on board with the planning process.

Step 3. Selecting. Evaluate the strengths and weaknesses of each potential “successor.” Do they have the Expertise? Experience? Skills? Energy? Knowledge Base? Education? Desire? Are they the absolute best person or group to lead the business into the future? This is the time to put aside “feelings” and emotions; and look at the hard facts. As a very simplistic example, you love your son, but your brother-in-law has the best qualifications for success in the future business. Seek agreement during the selection process. Again, that organization chart can place things/people into perspective.

Step 4. Training. Be prepared to invest some serious training time for the person(s) you have selected for succession. Many small business people, as entrepreneurs, have played their “business cards close to their chest”. Some of have been the “jack of all trades” for the business. Now is the time to share -your knowledge; your experience; your expertise. The successor(s) will need to know/learn everything that you know about the business. If you feel the need for confidentiality agreements, now is the time to act on this. Consult a qualified attorney when you have legal questions/issues.

Step 5. Timetable. The timetable might be years into the future (and hopefully not just months or weeks). Consider it a road map for your company’s future. Outside forces will require adjustments to the timing of certain decisions, but having a timetable will make for a smoother transition. The timetable fluctuates under many variables such as: your personal needs/goals; readiness of successor(s); economic climate; legal issues; company fiscal year; and many other factors. The timetable will include benchmarks to “keep you and your company on the road”.

Step 6. Planning. Having the beginnings of a plan in place, now look to your personal future. Will your future involve full or partial retirement? A new business venture? Will you require future income from the business? What would you do if the business failed in the future?

Step 7. Exiting. Time to step away and “turn over the reins”. Will you continue on a board of directors? In the capacity of ‘advisor’/consultant role? Seek closure. Remember, that according to some statistics, 95% of start-up businesses fail. Having a small business places you firmly into the 5% success category. It is time to reap the rewards of the successful entrepreneur.

And finally,
1. A good succession plan might not be perceived as “fair” by everyone. Sometimes one has to settle for equitable.
2. A good succession plan might not be about “building a legacy”, but rather seeking an optimum solution.
3. A good succession plan will probably not have complete agreement with all concerned parties…refer to #1…

For more information about succession planning (exiting a business), you can go to and for helpful guides.



About Attorney Barbara Ann Dalvano

Attorney in Denver, Colorado with extensive practice experience in the areas of Estate Planning, Wills and Trusts, Business Succession Planning, Probate, Contract Law.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: