Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. Consult a licensed professional for personalized guidance. The information provided is general and does not account for individual circumstances. FinFinancial LLC does not endorse specific financial strategies or outcomes.

While you're busy managing day-to-day operations of your business, there's something that often gets pushed to the back burner — succession planning. While business acquisitions reached 9,546 transactions in 2024, with a total value of $7.59 trillion — that's 15% higher than 2023 — only 51% of companies have a written CEO succession plan.

These numbers tell us something important: businesses are changing hands at increasing values, and being prepared for transition is essential. In this guide you’ll find key things you need to know about it.

Why Succession Planning Matters More Than Ever

Your business is your legacy, your team's livelihood, and often a significant part of your retirement plan. That's where financial planning comes in. A good succession strategy is all about making sure your business can thrive without you.

And speaking of retirement, there's more to consider than just the handover. Tax planning plays a major role in how much value you'll actually keep from your life's work. With business values trending upward, getting this part right makes a real difference to your bottom line.

The transition of ownership and management responsibilities isn't something that happens overnight. It takes time, careful consideration, and often several years of preparation. When owners invest in identifying and developing potential successors, they're doing more than planning for their exit — they're building a stronger, more resilient organization right now.

Good succession planning creates clarity for your team, stability for your clients, and often leads to improvements in your current operations. 

The financial implications reach far beyond the sale price. From tax efficiency to retirement income planning, each decision point in your succession strategy can significantly impact your long-term financial well-being. So by getting every element right, you're maximizing the value of everything you've built.

Basics of Business Succession Planning

The succession advisory market is expected to reach $8.4 billion by 2033, growing at nearly 5% annually. That's a clear signal that businesses are taking this seriously.

What Makes a Good Succession Plan?

A succession plan is actually two plans working together. First, there's your long-term strategy — the one you work on gradually, to develop your team and prepare for a smooth transition down the road. Then there's your emergency plan, which kicks in if something unexpected happens. You need both, and they work in different ways. Here’s what long-term succession planning means:

• Identifying promising team members who could step up to lead

• Getting them ready with the right skills and experience

• Setting up a timeline that works for everyone

• Making sure your business stays strong during the change

Beyond the Basics

When you're thinking about succession, you've got to consider some different angles. If you're working with financial advisors (and that's often a really good idea), they can help you see the whole picture. They might spot opportunities or risks you hadn't considered.

Benefits of Effective Succession Planning

Let's talk about what you actually get from a good succession plan — because the benefits are pretty significant. In fact, 60% of leaders say not having a succession plan is a major risk. And they're right: better succession planning could add 20-25% to company valuations. Those are numbers worth paying attention to.

Keeping Your Business Stable

When you've got a solid succession plan, your whole organization feels it. Your team knows there's a plan for the future, and that makes a big difference in how they see their place in the company. It's like having a safety net — everyone can focus on their work because they know what happens next.

Building a Stronger Team

Here's something interesting: about 48% of leaders say succession planning brings significant cultural benefits. And it makes sense. When your employees see that there's room to grow and move up in the company, they're more likely to stick around and give their best work. You're creating a culture where people want to stay and grow.

Making Changes Smoother

Changes in leadership can be tough on everyone. But when you've prepared for them, they don't have to be so difficult. A good succession plan means you can keep focusing on what matters — running and growing your business — even during times of transition.

Succession planning does more than just prepare for leadership changes. It can make your business stronger right now. When you're working on succession planning, you often spot ways to improve your current operations, strengthen your team's skills, and build better processes.

Common Mistakes in Business Succession Planning and How to Avoid Them

There are some common issues that can trip you up along the way. Let's talk about what they are and how you can avoid them.

1. Going Without a Written Plan

Running a business keeps you busy, and it's easy to think "I'll get to that later." But when later comes, it's often too late. A good plan helps everyone know what's going on and keeps things moving smoothly when changes happen.

2. Keeping Everything Informal

Sometimes agreeing to the deal with only a handshake can lead to tough situations down the road. When things aren't formalized, people can have different ideas about what was agreed upon. That's when things get complicated.

3. Not Having Enough Money Set Aside

Changes in leadership come with unexpected costs: from training, hiring more help for the transition period, maybe spending on consulting fees. Planning for these costs ahead of time makes everything easier.

4. Forgetting About Daily Operations

Your business needs to keep running smoothly during any transition. That means making sure everyone knows how to handle their daily tasks, even when leadership is changing and maybe busy with all the strategizing about the transition of power.

5. Making Too Many Assumptions

Sometimes we think we know what others want or can do, but in most cases these assumptions might be wrong. Have open conversations with potential successors about their goals, desires, vision, and their current knowledge of the business. 

6. Only Focusing on the Top Jobs

Sure, your CEO role is important. But what about your head of operations? Your lead sales person? Your key technicians? Every important position in your company needs a backup plan. What if they leave because they don’t like the new leadership? That has to be thought through. 

7. Using Generic Solutions

Each business is different, and what works for one might not work for another. Take time to think about what your specific business needs and build your plan around that. Don’t try to fit in someone else’s plan.

8. Being Too Secretive

When people don't know what's going on, they get worried. And worried employees start looking for other opportunities, not to mention that they are not very motivated to carry on with their day-to-day responsibilities. Being open about your succession plans (while keeping sensitive details private) can help keep your team confident, productive and engaged.

9. Setting and Forgetting

A succession plan isn't something you can just write once and file away. Your business changes, people change, and your plan needs to keep up. Set aside time every year to review and update it.

10. Leaving It All to HR

Your HR team is great, but they shouldn't handle succession planning alone. It takes input from all your senior leaders to create a plan that really works. They know their areas best and can spot potential leaders you might miss otherwise.

Start working on your plan now. It's a bit like going to the gym — the best time to start was yesterday, but the second-best time is today. And if you need help, that's okay too. There are professionals who can guide you through the process and help you avoid these common pitfalls.

Implementing an Effective Succession Plan

Now let's talk about how to create a succession plan that might actually work. 

Step 1: Finding Your Future Leaders

Start by looking at your team. Who stands out? Who's showing leadership potential? Sometimes the best candidates are right there in front of you, but occasionally you might need to look outside your organization. Take your time with this step — it's probably the most important one.

Step 2: Building Their Skills

Once you've identified potential successors, it's time to get them ready. This might mean:

• Setting up mentoring sessions with current leaders

• Getting them involved in different parts of the business

• Giving them chances to lead projects and make decisions

• Creating opportunities for them to learn from mistakes in a safe way

Step 3: Making Roles Crystal Clear

Everyone needs to know what they're responsible for — both during the transition and after. Write it down, talk about it, and make sure there aren't any gray areas that could cause confusion later.

Step 4: Creating a Timeline That Makes Sense

You need a plan, but you also need to be flexible. Set some target dates for different phases of the transition, but be ready to adjust them if things change. And they probably will change — that's just how business works.

Step 5: Keeping Everyone in the Loop

Good communication makes everything easier. Your team will feel more confident when they know what's happening and why. Be open about the process (while keeping sensitive information private, of course).

Step 6: Checking In and Updating

Your business changes over time, and your succession plan should too. Set aside time every few months to review how things are going and make any needed adjustments.

Key Elements to Consider

There are a few things that can really make or break your succession plan (that's just between us):

• Cultural Fit: Your successor needs to understand and believe in what makes your business special. Skills can be taught, but values have to be there from the start.

• Money Matters: Transitions cost money — sometimes more than you'd expect. Check out our Beginner's Guide to Financial Management for Small Business Owners for help with the financial side of things.

• Legal Details: Get some good legal advice about ownership transfers and employment contracts. It might seem expensive now, but it's way cheaper than fixing problems later.

The key to all this? Keep it simple, keep it clear, and keep moving forward. A good succession plan isn't about creating perfect documentation — it's about making sure your business can thrive even when leadership changes.

Conclusion: The Path Forward with Your Business Succession Plan

Creating a succession plan can feel overwhelming — and you're not alone in that feeling. 16% of business owners feel unprepared for succession planning, with many facing unexpected challenges and emotional decisions along the way.

But here's the good news: you don't have to figure it all out by yourself. Technology has made connecting with financial advisors easier than ever. Modern platforms like FINNY can match you with advisors who understand succession planning and might offer guidance based on your specific situation.

Working with an advisor isn't about giving up control of your business or your succession plan — it's about having an experienced partner who can help you think through your options and spot opportunities you might have missed.

Get matched with a financial advisor.