Business Succession Planning: A Guide for Entrepreneurs and Family Businesses

Why business owners put off succession planning

Succession discussions can feel daunting for entrepreneurs who are married to their business.

Many fear that bringing up the subject means loss of control or even disloyalty. In fact, over 70% of business owners’ wealth is tied to their business, making the topic emotionally charged as well as financially critical.

But putting it off can leave your company, partners and dependents vulnerable to life’s transitions, whether planned or not.

The consequences: unpreparedness and its costs

Despite the risks, recent surveys show compelling statistics:

• 45.9% of family businesses have no formal succession plan (2025).
• Only 19% of all organizations have a formalized plan.
• 73% of private companies expect ownership transitions in the next decade.
• Only 30% of small businesses that go to market actually sell.
• Over 50% of owners prioritize legacy and continuity over maximum valuation.

How to create an effective succession plan

1. Start Early—Make It a Continuous Process

Start planning 3-5 years before you want to exit or transition. Succession planning works best when it’s part of ongoing strategic reviews.

Plans need to be reviewed and updated regularly to reflect changes in organization, market and personal circumstances.

2. Assemble a Succession Team

Carefully decide whom to include in your team and clearly delineate their roles as shown in the table below:

3. Identify Key Positions and Viable Successors

Document key leadership and technical roles. Assess internal and external candidates. For family businesses, set clear criteria for family involvement and actively address intergenerational readiness, interests and skills.

4. Get a Thorough Business Valuation

Use professionals to get an unbiased, updated market valuation. Use recognized methods—asset based, DCF, market comps or SDE and update the valuation periodically.

Proper valuation is critical for buy-sell agreements, estate and gift tax planning.

5. Structure and Fund Buy-Sell Agreements

A buy-sell agreement ensures a smooth ownership transition in death, disability or voluntary exit. Integrate life insurance and key person insurance to fund buyouts and cover critical roles.

Well-funded buy-sell agreements prevent forced asset sales or liquidity crises.

6. Integrate Personal and Business Financial Plans

Your business succession plan and personal retirement/estate plan must work together:

• Consider federal and state estate/gift tax exemptions which are set to change in 2026.
• Align sale or transfer strategy with retirement income needs, timing and legacy goals.

7. Develop and Train Successors

Create structured development plans with clear milestones. Provide mentorship, leadership training and incremental responsibility for successors. Early, transparent engagement builds skills and trust especially in family firms.

8. Establish Governance and Communication Protocols

• Set up family councils or advisory boards for family businesses.
• Hold structured meetings with all stakeholders.
• Document role definitions, rights, and responsibilities.
• Use mediation or advisory professionals for dispute prevention and resolution.

9. Document and Communicate the Plan

A plan is only as good as its documentation and communication:

• Formalize roles, responsibilities and timelines.
• Share relevant information with leadership, family, key partners and even major customers and suppliers as needed.

10. Review, Update and Refine Regularly

Family firms have unique challenges and opportunities:

• Address generational conflicts with open communication, clear boundaries and outside professionals when necessary.
• Consider “family charters” and readiness benchmarks developed between generations.
• Define both ownership and leadership rights, they don’t have to be the same.

Business Continuity and Succession Planning

Family firms present unique challenges and opportunities:

• Address generational conflicts with open dialogue, clarified boundaries, and inclusion of outside professionals when necessary.
• Consider “family charters” and readiness benchmarks developed collaboratively between generations.
• Define both ownership and leadership rights; they need not coincide.

Integrating Business Continuity and Succession Planning

Understand the difference:

• Continuity Planning: Focuses on immediate crisis management (disasters, key person loss, cyber attack).
• Succession Planning: Concerns planned leadership/ownership transitions over years.

Both are important and should be developed together but documented separately.

Succession Planning Checklist: Are You Prepared?

Use this practical checklist as a starting point:

• Have you identified scenarios for business succession?
• Is there a current list of qualified, interested successors?
• Are all critical business agreements (buy-sell, operating, shareholder, partnership) updated and reflective of your current goals?
• Is your company regularly valued by an independent expert?
• Do you have adequate key person and life insurance?
• Is personal and business estate planning coordinated?
• Are successor training and transition timelines in place?
• Are communication protocols for conflicts documented?
• Has the plan been reviewed in the past 12 months?
• Have you involved all necessary advisors?

Commonly Overlooked Issues

• Tax planning aligned with the latest federal and state changes
• Retirement income sources besides business proceeds
• Successor readiness—training, mentorship and experience
• Communication strategies—family meetings, formal charters, open books

Now What? Next Steps For Your Business

1. Start talking today with co-owners, key employees and family.
2. Build your succession advisory team and schedule annual reviews.
3. Write or update your plan and share with key stakeholders.
4. Schedule training and valuation updates.
5. Stay on top of legal, tax and business changes.

Succession planning is not just a financial risk management tool—it’s an act of leadership and care for your legacy, your employees and your family’s future. With changes coming in 2025 and beyond, now is the time to act thoughtfully and comprehensively.

By following these steps your plan will protect you, build relationships and secure your business for generations.