John Mercer1 never imagined his sudden heart attack at age 58 would leave his business vulnerable. With no formal succession plan in place, his family struggled to maintain operations while managing their grief. Key clients, concerned about service continuity, began exploring relationships with competitors. Meanwhile, valuable employees, uncertain about the company's future, entertained offers from other firms. Within twelve months, the business John had dedicated his life to building had lost 40% of its value.
This scenario plays out with alarming frequency among business owners who haven't adequately prepared for the inevitable transition of their businesses. Unlike non-business owners who can simply name beneficiaries for their retirement accounts and life insurance, business owners must consider complex questions: Who will run daily operations? How will ownership transfer? What happens to client relationships and obligations? How will the business value be preserved during transition?
Succession Planning Options
How you structure your succession plan depends largely on your business model. Those operating within established partnerships or multi-owner businesses have different considerations than solo entrepreneurs.
For Business Owners in Partnerships or Multi-Owner Enterprises
If you're part of an established business with multiple principals, you should review all governing documents, including operating agreements, bylaws, and buy-sell provisions, ensuring they align with your personal estate plan.
For Solo Entrepreneurs and Small Business Owners
Solo business owners bear complete responsibility for all business matters and client relationships. Their personal guarantees often secure business leases, loans, and other obligations, creating potential complications for their estates.
Several options exist for solo entrepreneurs planning for succession. One approach involves entering a formal agreement with another professional in your field to assume responsibility for your business in the event of your death or incapacity. This arrangement works particularly well for professional service providers who can identify colleagues with similar expertise and client service philosophy, such as doctors, dentists, attorneys, etc.
Another option is to include detailed provisions in your will or trust for handling your enterprises and directing executors to engage qualified management to oversee the transition. Another alternative is to arrange for someone to assume temporary leadership while a permanent succession solution is implemented.
Regardless of the mechanism chosen, your succession plan should be formalized in writing and regularly updated as your business evolves. The designated successor should understand your industry and be capable of evaluating time-sensitive matters.
The Critical Role of Documentation
Whether you run a manufacturing plant, a retail store, or a consulting practice, comprehensive documentation forms the backbone of effective business succession planning. Create a business continuity dossier containing:
- Access information for physical facilities, digital systems, and financial accounts
- Contact details for key employees, vendors, clients, and professional advisors
- Business insurance policies, including liability coverage and key person insurance
- Loan agreements, leases, and other contractual obligations
- Intellectual property documentation and licensing agreements
- Employee benefit plans and payroll processing information
- Tax records and financial reporting systems
This information should be stored securely but remain accessible to your designated successors and personal representatives. Update the dossier regularly as your business circumstances change.
Family Considerations in Business Transitions
Family dynamics add another layer of complexity to business succession planning. If some family members actively participate in the business while others do not, how will you reconcile this in your plan? If multiple children work in the business, how will leadership transition? Will ownership and management remain unified or separate after your departure?
These sensitive questions require thoughtful consideration well before a crisis occurs. Frank family discussions, professionally facilitated if necessary, can prevent misunderstandings and establish realistic expectations. Document the outcomes of these discussions in both your business succession plan and your estate plan.
Conclusion: Your Business Legacy
Your business represents more than just financial value—it embodies your vision, values, and years of dedication. Proper succession planning ensures this legacy continues according to your wishes, providing peace of mind that your life's work will be preserved and those who depend on your business will be cared for. Just as you've shown foresight and determination in building your business, demonstrate the same qualities in planning for its future beyond your stewardship.
Click here to read Sarah's article published by In Business Magazine.
- This is a fictitious story. John is as real as Santa Claus. ↩︎
about the author
Sarah Clifford is a shareholder at Gallagher & Kennedy, advising individuals, families, and business owners with their estate plans to help manage and preserve wealth and assets. Her experience includes probate and trust administration, including representation of high-net-worth clients with trusts and estates valued in excess of $20 million.