Business succession planning strategies

A business succession plan puts down in writing the many important steps involved in what will happen when an owner or partner retires, dies, or otherwise leaves a business.

A business owner discusses succession planning with his partner at a boardroom table.

Why is business succession planning important?

When the owner or part-owner of a business retires, passes away, or otherwise leaves the company, what happens? If there is no plan in place, disagreements will surely arise. That’s why it’s important to prepare for business ownership transitions.

Business succession often comes into play when an owner or partner wants to retire. When that happens, the owner can be a part of the transition process and help guide members of the new leadership into their roles. And if it becomes obvious that more time is needed, the owner can even stay on longer than anticipated. When an owner or business partner dies, however, it is a different situation. If there is no set plan in place, things can get difficult, and they can fall apart quickly. In the first scenario, a business succession plan will help things to move smoothly. In the second scenario, a business succession plan can be absolutely vital. A business succession plan works best as concrete, step-by-step instructions for a variety of possible scenarios.

So, do you need a business plan? Ask yourself this: What would happen if you were suddenly unable to be a part of your business? Who would run the day-to-day operations? Would the business be able to survive? Who could take over? Would a chosen successor have the financial resources to purchase your share of the business? If you’re unsure about the answers to any of these questions, you will likely need a formal planning.

What goes into a business succession plan?

Every business is built differently and will require an individualized plan, but here are some of the common things that are usually documented in a formal business succession plan:

Succession timeline and contingency plans

For a planned succession, it’s important to map out the stages and provide plenty of runway time. You don’t want to have to rush a transition or delay it longer than you had anticipated. Start three to five years before your anticipated retirement date, so you have time to deal with any hiccups in the process. Not only do you need to prepare for the situation as you think it will develop, but you’ll also need to prepare for the unexpected. What happens if a partner suddenly passes away, for example? Try to consider as many contingencies as possible.

Formal business documentation

In order to successfully transition a business, you’ll need a lot of documentation on your day-to-day demands and your standard operating procedures. That could include employee handbooks, lists of certifications, training manuals, organizational charts, and more. Bring everything that you think someone new who is stepping into your shoes will need into a single place, so your successor doesn’t have to waste time searching for each piece or redoing work that has already been completed.

Identifying and/or training new leaders

Planned successions often include choosing a successor well before the transition or drawing up a list of potential successors. Even if you don’t think you will retire soon, knowing who could step in and run the business in your absence is important. Most solid planning calls for training potential successors for their future duties well ahead of time.

An up-to-date business valuation

With any plan that includes transitioning ownership, you’re going to need to understand how much that ownership is worth. That means having a certified valuer, like an accountant, add up the value of your business and its parts. Since how you set up the transition will be based on this, you’ll have to update the valuation as the business changes over the years to ensure a fitting transition.

Buy-sell agreement

This is a legally binding contract for how ownership or shares of a business will transfer if a partner leaves the business or passes away. There are a few different ways to structure this, like a cross-purchase or entity-purchase agreement, but ultimately it means that the designated buyer has first rights to the purchase, even if the owner dies and ownership transfers to his or her estate. Oftentimes, these work in tandem with the next entry, to help the remaining business partners or other buyers afford the cost of the buyout.

Cross-purchase life insurance agreement to fund your plan

With this setup, each business partner or key member of the buy-sell agreement owns a life insurance policy on each other partner in the business. The policy is designed to cover the purchase of that partner’s share of the company. That way, if one partner passes, the remaining partners will be able to purchase the shares from the deceased partner’s estate. The heirs will get the value of the deceased partner’s share in the business, and the business will transition to the remaining partners and continue to function smoothly.

Creating a business succession plan

Now that you know the pieces of a business succession plan, how do you go about making your own? The first step is a simple document that outlines the potential situations in which the business might need to transition. If there’s one owner, this could be fairly easy. With many partners, it will become more complicated.

Then, you’ll create a checklist of documents, decisions, and agreements needed for each situation. There will probably be a lot of overlap. You’ll often need the help of a number of professionals with this and the next step, including lawyers, accountants, and a life insurance professional who can guide you on how to fund your plan.

Finally, you can begin creating and putting into place all the pieces you need, completing your checklist. Once it is complete, you’ll be ready to implement your business succession plan, no matter what happens, helping to ensure that your business transitions smoothly and continues to go strong.


Our agents will work with your team to find the best solutions for your business.

Succession planning, employee benefits, tailored guidance, and planning for your retirement. We are ready to help. We will work with you, your accountant, and/or your attorney to understand your unique needs and to find the best solutions for you and your business. When needed, our agents will rely on our own experienced team of advanced planning professionals who have backgrounds in legal and tax areas to help ensure your solutions are complete and sound.*

*Neither New York Life Insurance Company nor its agents or employees provide tax or legal advice. Please consult your tax and/or legal advisors regarding your particular situation before implementing any strategies.