How to Dive into Business Succession Planning: 10 Key Questions

FR Financial Advisors |
Categories
Investments
Finance
Tax Planning

What will happen to your business when it’s time for you to take a step back?

That can be a tough question that many business owners eventually have to face.

Yet, far too many admit they don't have a formal succession plan in place. In fact, looking at family businesses alone, about 61% say they do not have a documented succession plan.1

Why?

Many business owners say they haven’t put together a succession plan because:

  1. They’re uncertain about their business's future (32%).2
  2. They don’t know where to start (32%).2
  3. They can’t identify a suitable successor (26%).2

To bridge these gaps and kick off business succession planning with more confidence, below are some important questions for business owners to ask themselves.

10 Questions for Business Succession Planning & Why It Matters

Knowing what to concentrate on in business succession planning can get you started on the right foot while helping you consider the essentials — and minimize the risks of overlooking any crucial factors.

Here’s what to ask and how to answer, as you get involved in succession planning for your business.

1. What are my long-term goals for the business?

Defining your vision for your business can paint the picture of the future you want for your company, beyond its current leadership. As you consider your answer to this question, think about whether you want to eventually:

  • Sell the business
  • Pass it on to family
  • Transition the company to employee ownership

Your goals can highlight your values, mission, and what you want for your legacy. They can also lead you to better strategies and devices for:

  • Preserving the business's identity during transitions
  • Proactively addressing potential challenges
  • Crafting your succession plan

2. Who are my potential successors & what are their qualifications?

Identifying capable and interested candidates early can give you the opportunity to upskill your potential successors while thoroughly evaluating the degree to which they align with the company’s values and long-term vision. This can promote continuity and minimize risk during transitions while:

  • Creating opportunities for training and mentorship
  • Carefully preparing successors, teams, and all employees for leadership transitions

Taking a forward-thinking approach to your successor(s) can instill confidence in your employees, stakeholders, and customers through various types of transitions and disruptions.

3. What is the timeline for succession?

A clear timeline for handing over the reins to your business can set the framework for training, financial planning, and communication strategies. With that, you can:

  • Avoid rushed decisions if an unexpected event accelerates the need for a major transition
  • Build clear processes and protocols for leadership transitions
  • Position all key players for a smoother transition with fewer challenges

Without a timeline, transitions can become rushed or chaotic, potentially interfering with operations, profits, and stakeholder confidence.

By creating a realistic schedule for your succession plan, you can mitigate risks, maintain stability, and provide everyone involved with ample time to adapt to change. This thoughtful approach can strengthen the business’s foundation to support sustainable success.

4. How much is my business currently worth?

Knowing the value of your business can give you a baseline for critical financial decisions. If you understand how much your business is worth, you can set more realistic expectations for its sale or transfer, creating a stronger base for structuring fair agreements with successors.

Additionally, accurate valuation can play a crucial role in:

  • Tax planning
  • Retirement funding
  • Identifying areas for growth or improvement
  • Maximizing potential value before major transitions occur

This can empower you with critical knowledge to make more strategic decisions during the succession process.

5. How will the transition impact employees and stakeholders?

Succession can impact employees, customers, and business partners, all of whom comprise the backbone of a business while being key to its long-term success. If not managed thoughtfully, a leadership change can be disruptive and:

  • Create widespread uncertainty
  • Affect employee morale and productivity
  • Shake stakeholder confidence

By understanding and addressing these potential impacts, business owners can:

  • Take a more strategic approach to maintaining transparency, fostering trust, and promoting more seamless transitions.
  • Proactively engaging employees and stakeholders in the process to strengthen their commitment to the company’s future.
  • Position leadership shifts as positive steps forward for all parties involved.

6. What are the tax implications of my succession plan?

Transitioning a business often triggers tax events, and that can significantly impact:

  • The financial outcome of the business transition
  • What type of financial burdens you, your heirs, and/or the buyer(s) may face

Addressing these matters early may open up more options for mitigating tax burdens, such as:

  • Leveraging gifting exemptions
  • Establishing and funding trusts
  • Structuring installment sales

With that, it can be easier to preserve more of the business’s value while ensuring compliance and smoother financial transitions.

7. What role, if any, do I want to have after the transition?

Some business owners prefer a clean break while others want to stay involved as advisors or consultants. By defining what type of ongoing involvement you want in the future, you can set clear expectations for all parties while also tailoring the dynamics of the transition around whether you:

  • Envision stepping away entirely
  • Plan on taking on an advisory role
  • Want to stay involved in day-to-day operations

The more clarity you have on what you want your future role to be, the more confidently your successors can take the reins while:

  • Ensuring continuity
  • Preserving institutional knowledge
  • Striking a better balance between maintaining your legacy and empowering the next generation of leadership to succeed

8. What contingencies do I have for unexpected events?

Life is unpredictable, and unforeseen circumstances can disrupt even the best-laid plans. They can include:

  • Sudden illness
  • Death
  • Economic downturns
  • An unplanned departure of a key leader
  • Other unexpected challenges

Having contingencies in place can make your organization more adaptable and stable, minimizing risks while protecting the business’s operations and reputation.

9. Do I have the necessary legal and financial devices in place?

Legal and financial frameworks can be essential to executing your plan effectively and avoiding disputes through the process. Consequently, many business succession plans involve agreements like (and not necessarily limited to):

  • Buy-sell agreements
  • Wills and trusts
  • Powers of attorney

These documents can serve as the foundation of a smooth, enforceable business transition, giving you more peace of mind that your wishes will be honored. They can also:

  • Provide clarity
  • Protect all parties involved
  • Minimize possible delays or complications
  • Pave the way for dispute-free business transfers

10. How will I communicate the plan to stakeholders?

Transparency and clear communication build trust and reduce uncertainty among employees, family members, and key partners. That’s because thoughtful communication can:

  • Create a deeper understanding of the changes
  • Help all essential parties get familiar with their role in the process
  • Maintain trust and stability among employees, customers, and investors
  • Address concerns, outline expectations, and build support for new leadership
  • Reduce uncertainty, foster collaboration, and create a positive foundation for the business’s next chapter

Planning for the Future You Want Can Start Now

Establishing an effective succession plan for your business can put your organization on a path to long-term success and smoother transitions when inevitable disruptions occur. It can also give you a more viable way to start putting key pieces in place for retirement.

As you do, some experienced guidance can go a long way toward building a more comprehensive business succession plan — and working through some of the thornier issues that may arise as your plan comes together.

Sources

  1. Bright Strr, 2023 [URL: https://brightstarcp.com/family-business-research-and-resources/]
  2. Investment News, 2024 [URL: https://www.investmentnews.com/retirement-planning/as-clock-ticks-on-succession-boom-a-third-of-business-owners-dont-have-a-plan/254355]

This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2025 Advisor Websites.