Succession Planning for Your Small Business

Succession Planning for Your Small Business

What will happen to my business when I’m gone?

This is something that Steve Jobs at Apple thought a lot about during the last years of his life. He put a succession plan in place to make sure that his company would not only survive in his absence—but even thrive. Tim Cook, who took over as CEO when Jobs stepped down, was incentivized to stay with staggered salary hikes and company shares that vest in five-year stages. Jobs integrated Cook into the daily business and introduced him to stakeholders. By the time Cook took over, most were comfortable with the transition.

“That was a very good strategic planning from Steve Jobs’ side,” said Raj Tumber, a Las Vegas-based business consultant and SCORE mentor for the U.S. Small Business Administration. He likened Jobs’ strategy to “operating the business from his grave.”

Apple is a wildly successful corporation, but small businesses need a succession plan as well—perhaps even more so. We all like to think of ourselves as invincible, but change at some point is inevitable. Entrepreneurs need to consider what should happen to their business if they should be permanently or temporarily incapacitated, pass away, or just retiring.

Trust or Will?

Experts agree that a trust outlining the plan, or a plan referenced in a larger estate trust, is a necessity to keep any business rolling—even if it’s commonly understood who will take over. A will only works in the event of your passing, and can be subject to probate. But actions in a trust can be triggered while you’re still alive.

With a living trust, Tumber says, your family or business partner can’t make significant changes to your business while you’re temporarily out due to illness (for example), and they must run the business according to your directive. A trust also helps protect your family’s interests if you have a business partner.

Sona Tatiyants and Alex Bruno are partners at Lynk Law, Inc., a law firm that specializes in estate planning and business law in Glendale, California. They say a trust or will should designate who is going to be the beneficiary of the business, and who’s going to be in control of managing the business. Sometimes it’s not the same person. “For example, your family members could be the sole owners, but they know nothing about the business,” Tatiyants says. In that case, you’d have a third party, like maybe senior managers you’ve incentivized to run the company so they’re reaping a benefit —while making money for your family.

What Goes into a Succession Plan?

Tatiyants and Bruno say the time to begin your succession plan is the day you open for business. “We start with the end in mind,” Bruno says.

Will a family member take over? Will a key employee take the management lead, with profits streaming to surviving family members or the retired owner? Will the business be sold? No matter what the outcome, there are four major elements that need to be included:

Systems and Processes

A description of business logistics is necessary to ensure continuity. Tumber recalls a couple that owned a successful salon for 15 years. The salon went under a year after the husband died because the wife had no knowledge of the business side. Making matters more complicated, there was still time on the lease and the woman needed to buy her way out of it—or risk being taken to court. Had there been a proper succession plan with detailed instructions or a provision to bring in a manager, the business could have been saved.

“You want to have good systems in place of how everything in the company is done,” Tatiyants says. “Then if you’re not in the picture, someone else can follow directions and know exactly what to do. So in essence, you’re creating a franchise of your company.”

Definition of Roles

Duties and responsibilities may shift when you’re gone, and there needs to be a clear understanding of who takes on what to avoid any differences in approach. “Sometimes your family member might not be the qualified person to run the operation. You might have to bring in somebody more experienced from the outside to run the business,” Tumber says.

A Transition Period, Time Permitting Tatiyants recalls a friend who bought a financial-planning practice from someone retiring. The old owner took about six months to introduce the new owner to all his clients so that there could be a smooth turnover of the files, keys, and most importantly—trust. “It’s not something that just happens overnight. You’re not selling a house, and then the new owner comes in, and that’s it. There are relationships involved in a business. There are vendors involved, there are clients involved, and really getting everybody on board. “That would be one of my top things to consider.”

Periodic Review and Communication

A plan that made sense when your children were young may not make sense when they’re old enough to take over, or if the business has changed over time.

Keep your key employees, stakeholders, prospective partners, and family members in the loop. If you have a five-year succession plan, have every year and every step as clearly outlined and delegated as possible. “Have everything—absolutely everything—in writing,” Tatiyants emphasizes.

But a succession plan is more than just keeping the lights on—it’s about staying true to the core goals you established when you began your business. Tatiyants uses the Apple transition as a good example. “They have such a clear idea of who they are, what their vision is. Even if Steve Jobs is nowhere near.”

Vanessa McGrady

About the Author


Vanessa McGrady is an award-winning communications expert skilled in creating content for national publications, Fortune 200 corporations and small businesses.

Sign up for new articles and updates on events

Follow us on