Buying and Selling a Business | Templates

Succession Planning Template & 5 Steps to Write a Succession Plan

Published October 14, 2019

Published Oct 14, 2019

Robert Newcomer-Dyer

WRITTEN BY: Robert Newcomer-Dyer

A business succession plan includes step-by-step instructions that establish procedures in the event a business owner or key employee leaves the business. Our succession planning template helps business owners as they answer questions like who will take over the business, how long will it take, and what standard operating procedures need to be passed on.

There are five common steps involved in succession planning:

  • Timeline of succession
  • Determining your successor
  • Formalize your standard operating procedures (SOPs)
  • Value your business
  • Fund your succession plan

Download Succession Planning Template

Succession Planning Template

Click below to download our succession plan template as a DOCX or PDF:

  • Download as PDF
  • Download as DOCX

How Succession Planning Works

Succession planning is the set of events, timelines, and standard operating procedures that are established ahead of a change of ownership in a business. Business owners can create a succession plan in a number of ways, including by following this succession planning template, as well as by engaging a professional who’s well-versed in the process.

Who Should Create a Succession Plan?

Any business owner with a successful, thriving business should consider creating a succession plan. Often thought about in the context of retirement or sale of a business, a succession plan is also a critical tool in the event of untimely death or illness. A properly constructed succession plan acts like a will for your business, ensuring the best interests of the business are carried out.

When to Create a Succession Plan

Business owners wondering when to use this succession planning template to create a plan might wonder when they should get started. Much like a personal will, the answer depends on a variety of factors, but generally comes down to as soon as possible.

Creating a succession plan takes time and effort, and answering the questions accurately is not easy. For this reason, many business owners start planning for succession at least five to six years before a transition. Creating a succession plan should be considered as a contingency in case of death, illness, or other circumstance that creates an unexpected need for transition.

Succession Planning Resources

Finding help with succession planning may mean working with your current accounting firm (provided they have experience with helping to develop succession plans). The amount of help you need will likely scale up with the urgency of your succession planning needs, as well as the size and complexity of the business. Consider whether to bring in a temporary accounting and finance professional, or hire an accounting firm to assist you.

Some resources you can tap to help you with succession planning are:

As one of the accounting industry’s “Big Four,” PricewaterhouseCoopers (now doing business as PwC) is a firm with extensive experience in succession planning. The company’s self-described focus on small, privately held businesses minimizes the risk of becoming just another number and means it commonly deals with the sort of obstacles that you’ll encounter.

SCORE , the nation’s largest network providing small business mentoring, has developed a quick guide to succession planning. The real value is that small business owners can apply to be matched with mentors who offer their assistance on a volunteer basis. For business owners in need of simple succession planning help, this option is worth consideration.

Local Accountant

Small business owners may wish to consider working with a local accountant (provided that accountant is well versed in succession planning). Entrepreneurs who choose this route can ask around in their personal network, tap in to their local Chamber of Commerce or other local business support groups, or search for a certified public accountant in the directory provided by the American Institute of Certified Public Accountants.

The Five Steps to Writing a Succession Plan

Writing a succession plan can be a daunting task. Indeed, many business owners put it off because they’re not ready to tackle the complexities. We’ve narrowed the process down to five simple steps to direct you along the way, including choosing your successor and determining whether to sell your business using life insurance, an acquisition loan, or other methods.

The five common steps to preparing a business succession plan template are:

1. Timeline of Succession

There are two key types of succession plans: an exit succession plan and a death-or-accident succession plan. You may wish to write a death-or-accident succession plan well in advance of when you think you’ll need it to protect your business and successors in the event of unanticipated events. An exit succession plan should be written when you have a specific plan to transfer ownership of your small business.

The two most common types of succession plans are:

  • Exit succession plan: A plan to transfer ownership on a specific date, e.g., at retirement.
  • Death-or-accident succession plan: A plan for one’s business in the event of their death or disability.

While an accident plan should be considered at any age, an exit succession plan should be written when you are within several years of retirement or wish to otherwise exit the business. When writing an exit succession plan, you should have a specific date that you would like to transfer the business, and indicate whether you will remain involved in the business post-succession or prefer a clean separation.

Template Tip

On the succession planning template, answer all the questions in section one. If you’re writing this succession plan to exit your business on a known date, fill out any remaining details, including how long you expect the transition to last.

2. Determining Your Successor

A highly important aspect of writing a succession plan is choosing who will take over the business. Many business owners plan to have a family member, such as a child, take over the business. Other common choices include a business partner or key employee in the business. And of course, an outside buyer is always a possibility.

Common successors business owners choose are:

  • Family members
  • Key employees
  • Outside buyers

Choosing a successor may be difficult, and requires considering what is in everyone’s—including the business’—best interest. While keeping the business in the family may seem like a clear choice, keep in mind that second generation businesses have a high failure rate. For this reason, many business owners choose instead to sell the business and provide a cash inheritance for their family.

Consider filling out profiles for at least three potential candidates. This will give you a good preliminary comparison of everybody’s skill and experience. Even if you’re already set on a candidate, you may wish to have a backup plan in the event the person leaves your business or doesn’t want to become an owner.

3. Formalize Your Standard Operating Procedures (SOPs)

As a small business owner, you should understand the importance of recording and formalizing day-to-day functions. Standard operating procedures should be documented for your managers and employees to reference, as well as any future owners of the business. Important items to document may include a daily checklist of opening and closing procedures, training for new employees, and a performance management system .

SOPs vary from business to business, but often include the following items:

Common Standard Operating Procedures

In our succession plan template, we’ve provided a checklist for these items—feel free to add or remove any, if necessary. Once you have completed an up-to-date document, attach it to your succession plan and check it off the list.

4. Value Your Business

Figuring out the value of your business should happen early—and regularly. It’s an unfortunate fact that many business owners tend to overvalue their enterprise, and these misjudgments can snowball into financial errors when planning for retirement.

There are several ways you can determine the value of your business, from using a simple business valuation calculator to provide a rough estimate, to following more advanced methods for how to value a business , as well as hiring a professional appraiser. You may also consider working with a company that offers business valuation services, such as BizEquity or Guidant Financial .

A good practice is to consider the lowest price the business should sell for. When the business is eventually listed for sale, it may take a long time to find a buyer who is willing to pay your asking price. The succession plan should provide stipulations regarding how long to wait before dropping the price, how much to lower the price, and the lowest acceptable offer.

5. Fund Your Succession Plan

Few buyers out there have enough liquid cash to pay for your business upfront. This is why every succession plan needs a specific plan for how the buyer will make the purchase, whether it’s a loan, installment payments, or other option. The last thing you want is to reach your retirement date, or triggering event, and find that your chosen successor has no way to afford your business.

This is also why your funding plan will often need a buy-sell agreement. This is a legal document in which your buyer agrees to a specific course of action (like taking out a loan or life insurance policy) in order to afford the purchase. Once you’ve settled on a specific method of funding, make sure you meet with a legal professional to draft your buy-sell contract.

Common Succession Plan Funding Options

Life insurance.

Most commonly used when a family member or co-owner is taking over the business, a life insurance policy can help your successor purchase the business from you or your heirs. Contrary to how it sounds, life insurance isn’t only used in the event of one’s untimely death. Permanent life insurance builds cash value that can be taken out at any time, so it can also be used in the event of retirement, disability, or any other triggering event.

Life insurance arrangements are common in family successions, especially when you may have multiple children, but only one is taking over the business. With your chosen successor as the beneficiary, a life insurance payout can enable them to purchase shares from your other children, thus leaving everyone with some compensation and financial security.

Acquisition Loan

An acquisition loan is money borrowed by the buyer in order to purchase the business. This is common when a key employee or outside party is taking over and they need some funding to afford the purchase. Buyers can typically get 70% to 80% of the purchase price financed from a bank or the Small Business Administration (SBA) —which is great news for sellers who want to be paid in full upfront.

Acquisition loans are secured against future profits of the business. While this makes them a generally reliable option, it also means a bit of work for the seller. Prior to the purchase, you’ll need to provide a lot of details about your business for the bank’s due diligence. Even then, however, the loan is not guaranteed. Pre-approval can provide some security, but it would need to be undergone regularly (every six to 12 months) up until the transfer date or triggering event.

Seller Financing

Seller financing is when the buyer pays you back gradually over time. This is one of the easiest and most flexible arrangements, as the business owner and buyer can set whatever terms they like. Most agreements involve a down payment of 10% or higher, followed by monthly or quarterly payments with interest until the purchase is paid for in full. Again, however, the exact terms can vary widely.

The key downside to seller financing is the time it takes to get paid back. Especially if you’re relying on the sale to fund your retirement, a 20-year term may be less than ideal. However, given the flexibility of seller financing, it can be possible to find an arrangement that works for everyone.

Business Succession Planning Tips From the Pros

We asked industry experts in succession planning to provide some tips for business owners thinking about creating a succession plan. Choosing the right successor is a critical step, as is ensuring that you have realistic expectations throughout the process. Many business owners also ask themselves whether they should consider creating a succession plan.

Some tips when creating a business succession plan are:

Ray McKenzie

Groom Your Successor Ahead of Time

Ray mckenzie, founder & managing director at red beach advisors.

“A majority of businesses do not have a formal business succession plan and never anticipate it being needed.

“The most common mistake business owners make is they retain and keep information only for themselves. This can be signatory rights, passwords, access, or key phrases.

“Review your company succession plan every six months and every time a critical employee leaves the business.”

Ed Alexander

Keep Your Expectations Realistic

Ed alexander, esq., founder at alexander abramson pllc.

“The biggest mistake small business owners make in their succession plans (aside from not having one) is having unrealistic expectations.

“First, business owners regularly have an unrealistic conception of what their business is worth. It’s their baby, and they have an emotional connection to it, but this connection can’t be laid out in a profit and loss statement.

“Second, Family Business Institute data has shown that 88% of small business owners believe that transferring the business to their children is a viable succession option. The reality is that only 30% of small businesses will pass to a second generation, and only 12% to a third generation.”

Patrick Hicks succession planning template - Tips from the Pros

Consider the Risk of No Succession Planning

Patrick hicks, head of legal for trust & will.

“Having a business succession plan becomes more important if your business has valuable assets or has employees. If you operate your own business with just yourself and no business assets, the downsides of having no plan may be smaller.

“If you have employees, consider who will be able to make payments to those employees and who will carry on operations after your death.

“Machinery, equipment, materials, intellectual property, and customer lists can all be valuable assets—the brand and reputation associated with your business—that can all disappear if you don’t have a plan in place to deal with those assets.”

One of the most common mistakes business owners make in succession planning is failing to review their plan regularly. Time changes many things, and in order for your succession plan to be effective, it needs to be reviewed regularly and updated to reflect any changes. These could be company changes, tax law updates, changes in valuation, or new industry developments, among other things.

For family-owned businesses, you’ll also need to consider aspects such as changing family dynamics—do all members have the same desire regarding what to do in the future, or are all key players still with the business? It’s essential that business owners update and adjust their business plan to reflect changes such as these.

Bottom Line

Often, the most difficult part of succession planning is answering difficult questions. What unexpected events should you prepare for? Who will take over your business? How will you compensate yourself, your spouse, or your children? You can answer these questions with the help of our succession planning template. You may also wish to engage legal or financial experts with experience in succession planning.

About the Author

Robert Newcomer-Dyer

Find Robert On LinkedIn

Robert Newcomer-Dyer

Robert has over 15 years of experience in sales leadership, finance, and business development. He recently spent six years leading a team of small business financing professionals, facilitating the deployment of critical capital to over 9,000 small businesses across the US.

Join Fit Small Business

Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you. Select the newsletters you’re interested in below.

I am looking for…

I need support for…

  • Login or other general help
  • Paycheck Protection Program

SPARK | Powered by ADP | A Blog for HR Professionals

Insights to help ignite the power of your people

Search SPARK

A Beginner's Guide to Business Succession Planning for Small- and Mid-Size Business Owners

David Rodeck

  • Share Spark Article on LinkedIn
  • Share Spark Article on Facebook
  • Share Spark Article on Twitter
  • Share Spark Article via Email
  • Print Spark Article

A younger woman and an older woman sit at a table and talk.

Having a business succession plan in place can minimize fallout if you lose a key employee. While it takes some extra analysis and foresight — and some transparent communication and documentation — it can pay off when a transition to new leadership goes smoothly.

As you run your business, you're likely focused on the day-to-day challenges. But time can go by quickly, and it's crucial to plan the next generation of leaders.

Proper business succession planning — that is, identifying and developing employees to step into future roles — can set you up for success down the road while also improving your employee retention rates and engagement now.

"It's a strategic approach to thinking about scenarios and plans to ensure smooth transitions between current and future incumbents," says Jay Caldwell, chief talent officer at ADP.

Let's explore the basics of business succession planning, including the benefits of doing it, key steps to take to set it up and the challenges you may encounter (and their solutions).

What is business succession planning?

Succession planning primarily focuses on how you'll replace essential leadership roles in your organization, including the owner and CEO. It may also include guidelines for continuity in other positions that are critical for success or difficult to fill. The idea is to start training and nurturing the next round of talent so you aren't left scrambling if a key employee quits, retires, gets sick or passes away.

Your succession plan may also include operational exit planning detailing what you'd like to happen when you or other top stakeholders retire. Documentation can settle decisions ahead of time such as whether you'd like to leave the business to family, sell it to another company or set up a buy-out with your employees.

"Every business owner wants to minimize distractions to their operations and goals," Caldwell notes. "Changes in leaders can be quite disruptive, particularly if there is not a plan in place."

Succession planning keeps your business running smoothly even when key employees leave. This is one just of the reasons to make business succession planning a priority .

Succession planning can help you find candidates and retain them

However, strategic workforce planning is sometimes not on the radar for small and mid-size business owners. Only 35 percent of these businesses have started the process, and of this group, only 8 percent have a complete written plan, according to 2022 research from MassMutual .

"It could be because of the demands of their operations, a lack of development resources or simply overlooking the importance of planning for transitions," Caldwell observes.

One common issue for smaller organizations when it comes to this type of planning is that you usually don't have a broad bench of talent to draw on. However, if you're thinking about the future of your business early on, you're more likely to ensure a viable candidate has been trained, whether internally or outside your organization. It can keep you from having to do a sudden — and possibly costly — hiring search. It also saves you and other leadership from working overtime to handle the role while looking for a replacement.

Your succession plan can prevent the loss of critical knowledge after someone leaves and conflict between employees suddenly vying for the open position. If your family members are part of the business, your succession plan can even guide the next generation of owners.

Finally, a succession plan has the potential to improve your employees' performance today. That's because your top contenders will stay committed to your organization if they know they're lined up for a role and help future-proof your management team .

"Seeing a clear future with the company is a top driver of retention," says Caldwell. "Establishing and following through on development action plans make succession candidates feel challenged and engaged, which can help ensure they are emotionally committed to doing their best work." He adds, "These are your best people and would be very valuable to your competitors, so succession plans can help protect your most important asset!"

Key aspects to have in a business succession plan

Because every business needs a unique plan, there aren't pre-made blueprints. But you can take several common steps to ensure your business succession covers the major points:

  • Identify priority roles. "In a world of finite time and resources, it's unlikely you can have a plan for all roles," says Caldwell. "Pick the ones that have the most significant impact on your business."
  • Define what is needed for each role. Consider the required experiences, knowledge, skills and behaviors to succeed in the short and long term. Clarity is a key part of the succession planning process .
  • Find possible succession candidates for each role. Look for up-and-coming leaders in your organization, external candidates and family members. Consider where they stand right now versus the position's ideal requirements and what training or skills they will need.
  • Discuss career aspirations with your candidates. Ask about their future career goals and if they see themselves in these higher positions. Also, ask what they might need to grow into these roles.
  • Set an action plan for developing future candidates. Think of the training, exposure, relationships or experiences that you can offer for these roles in the near term. For example, you could have the successor candidate fill the role temporarily while the current employee is out for a limited time.
  • Estimate when transitions may occur. Consider when you or other leaders want to start stepping down. Your plan could include a gradual phase-out, where existing leaders adjust their roles to focus more on mentorship/coaching their successors.

Overcoming road bumps with business succession planning

While succession planning may sound straightforward enough as you line up your wants and wishes for your organization, some common challenges can get in your way.

Vague goals and requirements

You must be clear about each role's requirements and the steps needed to develop your employees. You also should be transparent with potential candidates about how you view their future and gauge their interests rather than making assumptions about what they want.

Missing leadership buy-in

"Many leaders don't like thinking about a future where they are no longer with the company," says Caldwell. "It can feel morbid or counterintuitive, and so they'll need to be sold on the value of doing so."

Lack of available talent

Developing future talent is a must because it cannot happen overnight. You and your HR team should also network with external candidates to build the pipeline of those who could be brought into the company. You can cut down on the time an open position goes unfilled. On top of skills, focus on the diversity of future talent pools and develop a broad spectrum of leaders from different backgrounds and experiences.

Conflict between future candidates

Improper or unclear plans can create unhealthy competition between your employees, leading to distrust and a lack of collaboration. That's why fostering open, honest dialogue about your plans is essential rather than leaving everyone guessing what's coming next.

Emergency loss of employees

Unfortunately, life can get in the way of your succession plan with the sudden departure, illness or death of a leader. Your succession plan should consider how your business would react to an emergency departure. You could also cross-train employees across several roles. You develop more people who can step up in a pinch, and you may uncover unknown employee talents and passions for a new position.

Tricky family relationships

Succession planning can have extra challenges for family business owners to navigate. In some cases, making decisions you think are good for the company can lead to hurt feelings.

"This situation can have heightened emotional dynamics given the personal relationships inside and especially outside of the workplace," Caldwell warns.

You may want to try to make sure your personal relationships don't hinder your objectivity in considering successor candidates. Also, it's a good idea to recognize communication breakdowns that create a lack of transparency in how you're making decisions. If you want to hand over your business to the next generation one day, a well-designed and clearly communicated succession plan is critical.

Where to get help with your business succession plan

Building a succession plan is not easy, especially if it's beyond the experience of anyone in your organization. Even if you feel comfortable with your plan, it still could help to reach out to a professional.

"Getting a third party's opinion can help mitigate the challenges, increase perceptions of fairness and lead to a smoother transition when the time comes," Caldwell says.

You can turn to HR professionals with a long history of experience in helping other small and mid-sized businesses. They can guide you about the essential questions to ask yourself and other stakeholders to shape your plans and the documents necessary to lock it down.

Consider the ADP Talent Management and Succession Management programs from an outside perspective. They can guide you through this important process.

Recommended for You

Tools & resources.

Take your organization to the next level with practical tools and resources that can help you work smarter.

Recommend a Topic

Is there a topic or business challenge you would like to see covered on SPARK?

Subscribe to SPARK

Stay in the know on the latest workforce trends and insights.

Your privacy is assured.

Is there a topic or business challenge you would like to see covered on SPARK? Please let us know by completing this form.

All submissions will be reviewed and considered for use in future SPARK articles.

Important: If you need ADP service or support, visit ADP.com/contact-us/customer-service  or call 1-844-227-5237.

Succession Planning

succession plan of the business

Ivan Andreev

Demand Generation & Capture Strategist, Valamis

February 23, 2022 · updated April 3, 2024

16 minute read

This article is going to explain what succession planning is and how it can be applied to your business.

After reading this guide, you will have a strong idea of creating or improving your succession planning process and the best practices involved.

What is succession planning?

Business succession planning, benefits of succession planning, succession planning process, succession planning best practices, faq about succession planning, succession planning template.

Succession planning is the process whereby you identify new leaders and develop them to take over the role of the incumbent.

For businesses to thrive, it needs to avoid moments of crisis and lack of leadership.

At some point, succession planning will help with such a situation by preparing a candidate for a planned or emergency replacement. This could be because of retirement, a new opportunity, or in the event of death.

Succession planning is your safety net to ensure that business operations can remain smooth. A robust process will help you identify key individuals who could fill leadership positions.

In the best-case scenario, you will be given advance notice when someone is going to leave. A succession plan prepares you for the worst-case scenario and no notice.

At the same time, an effective succession planning strategy will avoid any questions of succession where leadership positions are concerned.

In the monarchy, this is often resolved through the order of succession. A well-understood model that passes the office to the nearest descendant. This model is also common with family-run businesses that intend to leave the business to their children or next of kin.

succession plan of the business

It can help you navigate crises and leadership transitions with ease.

In business, succession planning plays a vital role in identifying candidates to take on more challenging roles. When an important postholder departs they leave behind a void that can disrupt the company.

No matter the size of your business, a succession plan is a key to having a smooth transition.

Large companies such as Pepsi , Microsoft , and General Electric have well-known succession plans for executive talent.

For large corporations, it will typically fall to the CEO and the board of directors to oversee the succession plans. They will evaluate employees to identify leadership qualities and provide training for those in consideration.

Often the succession plan will look internally for candidates to take over positions. However, some companies may look to external candidates and may even employ the use of headhunters.

Smaller-scale companies may not need a comprehensive succession plan compared to large businesses. However, there will still be a need to identify someone to take over in the event of an emergency.

Therefore it is wise to train potential successors so they are prepared to step up if the need arises.

Types of succession plans

There are two types of succession plans that should be considered. This will give your business something to fall back on in the case of an emergency.

1. Long-term succession plan

The first type of succession plan you should consider is your long-term succession plan. This is the plan that you will more or less stick to as a standard for key positions.

A succession plan of this nature can be reevaluated and changed as the company grows. For large companies, this would be the plan that outlines the details of succession for all key positions.

2. Emergency succession plan

A secondary emergency succession plan can also be created, where appropriate, to be deployed in the event of an emergency.

This type of plan may involve more temporary measures but is intended to keep operations running smoothly.

This could see other senior members of staff take on extra responsibilities while a replacement is sought.

Many small and medium businesses do not have a succession plan. Of those that do, some of them have only informal plans.

This can be a risk for your business as there could be unforeseen incidents that could occur such as death. It is worth creating a formal, written succession plan that is developed and easily accessible.

Here are some of the benefits for businesses of any size to create a succession plan:

1. Candidates ready to start

When an upcoming promotion, retirement, or departure is approaching you will have the next generation of leaders ready to go.

Thanks to your succession plan the replacement will already have the skills required to take over the role.

2. Encourages managers to develop junior employees

Your succession plan can help your managers to start developing lower-level employees.

The plan helps to define clear progression routes through the company so managers can share appropriate training and information with junior staff.

Managers will also be able to start training their replacement when promotions are approaching.

3. It leads to higher job satisfaction

Employees report higher job satisfaction when there is a succession plan at their company. This is because it helps to define routes to progressions and lowers job insecurity.

A succession plan can help employees understand what they need to do to achieve a promotion. It can help with goal-setting and giving employees a sense of direction at work.

4. Helps to track progress

Succession planning can help your managers to track employee progress through performance reviews.

Internal opportunities can also be quickly filled with knowledgeable employees who have been upskilled and crossed trained.

5. Keeps shareholders confident

Whenever a high-ranking postholder leaves the organization it can leave shareholders feeling uneasy.

In some cases, they may look to sell their shares. A good succession plan can help keep investors on board.

For positions like CEO or CFO, the board may have had some input into the choice of successor. This will give the shareholders confidence in the company and the new postholder.

6. Cultivate and maintain company loyalty

Having a strong culture of promoting from within can lead to increased company loyalty.

You can attract talented employees who will stay with you for a long time. This helps them to have a strong understanding of the businesses, morals, and expectations.

Employees are more likely to stick around for the long term if there are defined advancement opportunities.

Instead of an informal plan, it’s a good idea to make a comprehensive document that outlines how succession should work.

Small and family businesses may only need a limited plan that outlines succession for a single person.

Larger corporations may need a comprehensive document that starts with the hiring process and works its way through the ranks and details different leadership positions.

The fundamentals of your succession plan will remain the same which is what we’re going to look at now.

It’s also worth pointing out that this document can be revised and amended whenever it is necessary.

1. Determine the scope

You will need to figure out how comprehensive you want your succession planning to be.

A small business might only need to find a replacement for ownership. Medium and large businesses may only want to consider the succession plan for their C-suite of employees.

It may also be the case you want a succession plan that covers every eventuality from store manager to distribution to CEO.

Ask yourself the following questions to decide what is best for your business:

  • Do you only need a plan that covers senior management?
  • Do you want a succession plan that covers the entire organization?
  • Are there any vulnerabilities in your business? Such as having a division with a higher amount of employees nearing retirement. Are you prepared for that?
  • Should performance reviews be used to help identify potential candidates?
  • Should the talent acquisition process be a part of your succession plan?

It’s important to understand what your specific needs are as well as the needs of the business.

The size and type of your business can help to inform some of your decisions but ultimately every business will be different.

2. Identify key positions and skills

First, you have to identify the key roles in your organization that will be good to secure.

It could be the CEO, CFO, CCO, CHRO, and different heads of departments.

Second, you might have some specific specialists that are unique to the industry or your business, e.g. it might be some highly skilled engineer, programmer, scientist, etc.

Consider the following questions to identify key positions and the skills needed for that post:

  • How does this position impact the company?
  • If this position became vacant, how would that affect the company?
  • Are there some big risks if this position became vacant?
  • What skills (both hard and soft) are needed for this specific role?

The objective is to figure out how crucial the position is. If the company would be severely affected by a vacated position then this is one that should be considered within your succession plan.

You will also need to understand what specific attributes are needed for the role. That way you can build your training and development around nurturing those key skills.

3. Identify potential candidates

Perhaps the most crucial stage is finding the employees that might be suited to a tougher challenge .

You could ask the current postholder for help determining who could step up in their absence.

It’s also worth considering that the right person for the job isn’t necessarily the next in line. Candidates could be sidestepped in the role or there could be other promising candidates in the business.

You may wish to make hiring a part of the plan and therefore can use interviews to vet potential recruits for career prospects.

Try to answer the next questions:

  • Who are the strongest candidates to step into this role?
  • What skills do they possess that could benefit their new office?
  • What skills are the candidates lacking?
  • Does this person have the appetite for more responsibility?
  • What training will they need to succeed?

It’s important to identify people who want more responsibility. Your top choice maybe someone who is happy in their current role and not looking to change.

This is something that can be gauged during annual reviews or in meetings about their professional goals.

4. Speak to the candidates

It would be wise to speak with the people you are considering.

This will give you a clear answer if they would be interested in the role.

Don’t make any promises but explain that they are being considered for leadership.

Explain that nothing is guaranteed as there are plenty of moving factors to consider. This includes the current postholder, the company, and the candidates.

However, you can gauge their interest and it may help to encourage high-performing individuals to remain loyal to the company.

5. Work on professional development

Leadership development is worth investing in particularly for employees you have identified for succession into key roles.

There are a variety of ways to develop potential successors and help them to develop leadership skills.

You can create a leadership development plan to ensure candidates have the right skills and are a good fit for leading positions. Employees being groomed for leadership roles can be developed in several ways .

You need to test your employees to make sure they can meet the demands of the increased responsibilities.

Some of the ways this can be achieved are through:

Connect the candidates with business leaders in your company. They can help to develop the skills of succession candidates and even share knowledge that might not be immediately obvious.

You can send prospects on courses to help develop their skills. These could be in-house courses or ones run through independent third parties.

Task forces

Task forces and project management is a great way to test your candidates. This will give them the opportunity to lead a team and test how well they cope under pressure.

When you think about development consider the following questions:

  • What is the best way to upskill?
  • What resources are required and available?
  • Are there some additional skills needed?

The focus should be on improving a candidate’s interpersonal abilities and communication skills that are important in a leading position.

You will also want to give them the opportunity to learn and develop the necessary skills required to do the specific job.

6. Trial and error

There should be ample opportunity to give your succession plan a trial run with the candidates you are considering. For example, if the postholder is away on holiday or off sick for an extended period you can use this as an opportunity to try someone in the role.

The benefit here is twofold, the candidate will get a feel for the position and appreciate the opportunity. While you can assess whether they are the right candidate for the position.

Note: Such tests can affect the team so pay close attention to this . This is especially true for external candidates and people from different teams. Not everybody will like it, unless the candidate is a strong leader from the inside of the team.

This is what you need to consider:

  • How does the employee interact with others?
  • Have they kept the department running smoothly?
  • How do they handle issues that arise?
  • How do they react to stressful situations and conflicts?
  • How much help do they need in the role?

You want to see them step up and take control of the position. This will help identify if there is any specific training they need to take the role full-time.

You can gauge whether someone is wrong for the position. This may come down to their interpersonal skills or ability to deal with new challenges.

7. Refine and redefine

Your succession plan is something that can be developed over time.

It may be that what was working years ago isn’t quite the same now.

You may need to adjust the succession plan to adapt to a changing business landscape. As the business grows you may need to redefine what is included in your succession plan.

It would be prudent to start with the most important roles in the business. After all, you can’t totally predict when a key position will become vacant.

Once you have those key positions locked down you can start to expand the scope of your succession plan.

1. Start from key roles

You should start with the most important roles first.

Which of the positions will have the greatest effect on your business if the postholder doesn’t turn up tomorrow?

Roles at an executive level are going to be the most disruptive ones. From there work out the specific skills and knowledge required for the role. This will help you to create your plan and identify potential successors.

Once the most pressing roles are covered you can look at what other roles are important to include.

2. Talk to your employees

Your succession plan will affect people and may make some people feel nervous.

It’s important to explain the scope of the succession plan and why certain roles are included in it.

You may only look to include executive positions or your plan may include managers and supervisory staff as well.

By giving a clearly defined scope you can avoid members of staff second-guessing their position.

3. Collaboration between management and HR

This is a process that should be driven by the business leaders with support from HR where necessary.

It is not strictly an HR process and therefore senior leadership should be communicated with regarding the succession plan.

Gain insights, input, and information from across the senior positions to help the succession plan run smoothly. Interviewing the post holders about the wants and needs of their job can provide crucial information.

4. Forecast your business needs

You should have an emergency succession plan in place that can deal with the untimely vacancy of a position.

Alongside this, you can create a detailed forecast and a longer-term plan. This is necessary to address things like upcoming retirement and promotions.

You will also need to consider how quickly the business can mobilize to fill this position.

A strong succession plan will understand how it will impact the business in 6 months, 1 year, and 5 years.

5. Create a pipeline of talent

Create a pipeline of talent so you have individuals ready to take up new challenges as they arrive.

A pipeline of this kind is essential for finding a talented successor but it’s also a good idea to help fill newly created positions. New recruits can be included in your pipeline of talent.

You can learn about this in our talent acquisition guide.

Even if you don’t have any open positions currently, you can still start cultivating a pool of talented individuals.

6. Annual talent reviews

Your succession plan is something that should be continually developed.

This includes reviewing the candidates on an annual basis or more. People may have moved on or into new positions within your company. Promising candidates may no longer be performing at the standard you would like.

Take a look at your succession plan every year and adapt and change things where it is necessary.

7. Build the learning culture inside your organization

It will help you nurture and grow potential candidates as well as new talents.

When you have identified the individuals that are being considered for senior positions you will need to develop their skills.

You can work with the candidates and they can lead their own individual development plan.

This ensures that their progress is actively monitored and they can take ownership of the process.

Managers should be on hand to provide guidance, resources, and provide timely reviews.

Why is succession planning important?

Succession plans make your business disaster-proof. They provide a concrete plan for filling key roles and help to avoid times of uncertainty. It can be reassuring for investors to know that there is a carefully considered plan in place.

How to do succession planning?

Succession planning should be conducted by business leaders with support from the HR teams. All affected individuals need to be involved in the process. Start with the end goal to identify what you need to achieve. Each business will have different needs so consider which positions will have the biggest effect on operations.

What is business succession planning?

Business succession planning is the process whereby you identify candidates to be groomed for senior positions. Specifically, when the incumbent leaves the role, this could be for a promotion, retirement, or an untimely death. Your business succession plan is in place to facilitate a transfer of power and keep your business sailing smoothly.

What is the correct order of the succession planning process?

  • Identify which positions need to be included
  • What specific skills are required for those roles?
  • Identify people who could be a good fit
  • Start grooming them for succession
  • Review your succession plan and candidates annually

You might be interested in

succession plan of the business

Career development plan  

Learn what a career development plan is and how to create it. Discover examples and download the career development planning template in PDF.

succession plan of the business

Discover the essence of mentoring and how it differs from coaching. Explore the types of mentoring, its definition, and the numerous benefits it can bring to individuals and the workplace.

succession plan of the business

What makes a good team

  • Search Search Please fill out this field.

What Is Succession Planning?

  • How It Works

Special Considerations

Succession planning and diversity.

  • Succession Planning FAQs
  • Business Essentials

Succession Planning Basics: How It Works, Why It's Important

succession plan of the business

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

succession plan of the business

Investopedia / Julie Bang

The term succession planning refers to a business strategy companies use to pass leadership roles down to another employee or group of employees. Succession planning ensures that businesses continue to run smoothly and without interruption, after important people move on to new opportunities, retire, or pass away. It can also provide a liquidity event , which enables the transfer of ownership in a going concern to rising employees. Succession planning is a good way for companies to ensure that businesses are fully prepared to promote and advance all employees—not just those who are at the management or executive levels.

Key Takeaways

  • Succession planning is a business strategy for passing leadership roles on to one or more other employees.
  • The strategy is used to ensure that businesses run smoothly after employees retire and leave the company.
  • Succession planning involves cross-training employees to help them develop skills, knowledge, and an understanding of the business.
  • Plans can be long-term, which are meant to account for future changes, or for emergencies whenever anything unexpected arises.
  • There are many benefits to succession planning, including inclusivity if companies have a strong plan to diversify their workforce.

Understanding Succession Planning

Succession planning is a contingency plan. It is not a one-time event. Rather, it should be reevaluated and updated each year or as changes dictate within the company. As such, it evaluates each leader’s skills, identifying potential replacements within and outside the company and, in the case of internal replacements, training those employees so they’re prepared to assume control.

In large companies, the board of directors typically oversees succession planning in addition to the chief executive officer (CEO), and it affects owners, employees, as well as shareholders. A larger business may train mid-level employees to one day take over higher-level positions. For small businesses and family-owned companies, succession planning often means training the next generation to take over the business.

The process takes a lot of time and effort. As such, it requires:

  • Recruitment or Proper Hiring: The goal is to choose candidates who are capable of rising through the ranks in the future. For example, an experienced person from another company might be courted and groomed for a higher position.
  • Training: This includes the development of skills, company knowledge, and certifications. The training might include having employees cross-train and shadow various positions or jobs in all the major departments. This process can help the person become well-rounded and understand the business on a granular level. Also, the cross-training process can help identify the employees that are not up to the task of developing multiple skill sets needed to run the company.  

Businesses may want to create more than one type of succession plan. An emergency succession plan is put in place when a key leader needs to be replaced unexpectedly. A long-term succession plan, on the other hand, helps the company account for anticipated changes in leadership.

According to human resources (HR) experts, succession planning involves preparation rather than pre-selection. This means that those responsible must identify the skills, practices, and knowledge. Although it may seem like a complex process, it doesn't have to be, especially if businesses and leaders are able to organize and plan ahead of time. The whole process can take anywhere between 12 to 36 months.

In small companies, the owner alone may be responsible for succession planning.

One way to succession plan in a business partnership is for each partner to purchase a life insurance policy that names the other partner as the beneficiary. This type of succession plan is called a cross-purchase agreement and allows the surviving partner to continue operating the business.

Here's how it works. If one partner dies at a time when the surviving partner would not otherwise have enough cash to buy the deceased partner’s ownership share, the life insurance proceeds make that purchase possible.

Succession planning is also commonly known as replacement planning and often involves passing on ownership of a company to someone else.

Benefits of Succession Planning

There are several advantages for both employers and employees to having a formalized succession plan in place:

  • Employees know that there is a chance for advancement and possibly ownership, which can lead to more empowerment and higher job satisfaction.
  • Knowing there is a plan for future opportunities reinforces employees' career development.
  • Management's commitment to succession planning means that supervisors will mentor employees to transfer knowledge and expertise.
  • Management keeps better track of the value of employees so positions can be filled internally when opportunities arise.
  • Leadership and employees are better able to share company values and vision.
  • A new generation of leaders is needed when there's a mass exodus of people from the workforce into retirement.
  • Proper succession planning benefits shareholders of public companies, especially when the next candidate for CEO is involved in business operations and is well respected years before the current CEO retires. Also, if investors observe a well-communicated succession plan, they won't sell the company's stock when the CEO retires.

Succession planning can also cultivate a new generation of leaders, thereby providing an exit strategy for business owners who want to sell their stake.

One of the key drivers to success for any company (whether it's a small business or a large corporation) is how inclusive it is. Companies are now recognizing the need to diversify their work environments in order to remain competitive and successful. Not only does it boost employee morale, but it also aims to broaden the pool of talent and make attempts to fight bias.

But how do companies do this? This involves a well-structured succession plan that includes hiring individuals from different backgrounds, those who have different leadership abilities, and people who bring different experiences to the table. The plan should also include removing any barriers that may exist internally for employees of all levels and ensuring a comfortable work environment for all employees.

This only works if succession plans are put into place wholeheartedly rather than to boost corporate images.

How Does Succession Planning Work?

Succession planning is used by businesses to streamline the process involving a change of leadership or ownership. It involves recognizing internal employees who merit career advancement and training them to assume new roles within the company. These plans only work if companies take the steps necessary to prepare. Plans are often long-term to prepare for inevitable changes in the future. Emergency plans can be set in place to account for unexpected changes.

What Is Succession Planning in Business?

Succession planning is an important part of any business to help it run smoothly and without interruption whenever there needs to be a change in leadership. Changes can be the result of people leaving the workforce (changing companies, switching careers, or retiring) or if there are unexpected circumstances, such as the death or displacement of a team member.

What Are Some of the Common Mistakes Companies Make During Succession Planning?

Succession planning requires careful organization and (as the name suggests) planning. Companies may miss opportunities or make missteps if they can't communicate their vision with employees, don't adopt a formal agreement or plan (including a shortlist of candidates and conducting regular reviews of positions and employees), assume their talent has the skills and knowledge to advance and succeed, fail to use succession plans for all employees, and ignore the need to diversify their talent pool.

SHRM. " Engaging in Succession Planning ."

succession plan of the business

  • Terms of Service
  • Editorial Policy
  • Privacy Policy
  • Your Privacy Choices

Business Succession Planning: A Step-by-Step Guide

business succession planning

Business succession planning is a valuable tool for both small businesses and growing enterprises. In small businesses, succession planning means effectively managing changes in ownership or leadership. In larger organizations, it that can help to avoid potential talent gaps that have a detrimental effect on the company. The right strategy can help you plan ahead so that you can transfer knowledge and retain employees in key roles. And this is a top priority in these uncertain, post-pandemic times.

With that in mind, we have created a step-by-step guide to help you design and implement a plan that sets your business up for long-term success . We will take a look at the benefits of succession planning in HR and break down the succession planning process to help you understand everything that’s involved.

What Is a Succession Plan?

Why is business succession planning important, what is succession planning in hr, the business succession planning process in 5 steps, business succession planning best practices, succession planning template, succession planning tools.

  • Create a succession plan with performance management software 🚀

So, what is the definition of succession planning? How can you apply it to your business?

Business succession planning is a process that helps you prepare your company for the future. Essentially, it’s about creating a strategy and process for identifying potential future leaders and developing their skills so that they are ready to take on a new role when one of your key employees leaves the company.

Through careful planning, communication, training, and feedback, you can create a successful change management strategy that prepares you for potential transitions in your business. This helps you avoid key player talent gaps. It also helps you proactively develop your inclusive leaders of the future.

Despite its valuable role in business planning, according to a survey conducted by SHRM last year, only 44% of HR professionals claim that their organization has a succession plan in place. What’s more, only 21% of those that do have a plan in place have created a formal succession management plan.

Do you have a detailed succession plan in place? If not, then you’ve come to the right place.

According to the 2021 Global Leadership Forecast , companies around the world are facing a leadership crisis. In fact, only 11% of surveyed organizations reported that they have a “strong” or “very strong” leadership bench, the lowest rating in the past 10 years (it has been in decline since 2011’s reported 18%). This drop has been attributed to a decline in leadership development and transition training in organizations.

Understandable given the distractions the world has had over the past couple of years.

Nonetheless, this figure shows just how important it is for organizations to work on their succession management strategies. This is the most effective way to ensure that the leaders of the future have the right skills and experience to guide them to success . And this is what business succession planning is all about.

By preparing strong leaders for the future, you can help your organization reach its long-term goals, reduce employee turnover , and build a stronger and more resilient business that’s ready to thrive.

Benefits of Business Succession Planning

In case you’re still not convinced, let’s take a look at some of the specific benefits of business succession planning in a bit more detail.

  • Identifying and developing your existing employees for future leadership roles helps you to promote from within . Aside from reducing turnover and hiring expenses , this also helps you ensure your future leaders have the right organizational knowledge and internal relationships , something which external recruits will lack.
  • Promoting the development of your existing employees shows them that you are willing to invest in their future . This can be a great morale boost that motivates employees to stay at your company. This helps you stay competitive and attract top talent to your business.
  • A well-designed succession plan helps you formalize training for both present and future leaders. It keeps your business moving forward and helps you retain your top performers .
  • Business succession planning is also an effective tool for mitigating the risks of organizational change . This helps you avoid any potential talent gaps when someone leaves your company. It also helps you pass on valuable institutional knowledge to future leaders before it’s too late.

Succession planning in HR consists is a vital part of talent management. It’s all about your role as an HR professional in identifying key roles and positions that may need filling in the future and finding and developing internal candidates who may have the right skills and experience to fill them. The right strategy can help you retain staff, cut recruitment costs and better manage your internal recruitment processes .

HR succession planning is the process of identifying, selecting and developing employees who could potentially become key players with the right development. This helps you prepare for potential organizational changes so that you have skilled and engaged employees waiting to fill key leadership roles when the time comes.

As an HR professional, you play a significant role in preparing and facilitating your organization’s succession management strategy. However, for your succession planning in HR strategy to succeed, it’s equally important to get the support of senior management so that your plan is as effective as possible and aligned with your organizational goals .

Talent Management and Succession Planning: Employee Buy-in

Business succession planning is also about managing your existing talent so that you are able to retain as much institutional knowledge and experience as possible. This means that, aside from working with senior management, you also need to rely on the feedback of your employees.

What do we mean by this?

Essentially, it’s all good and well managing and developing your existing talent, but they need to be on board with your succession plan and have a genuine interest in remaining at your company and developing their skills. Otherwise, the time and money you invest in preparing them for future leadership positions will be wasted.

Make sure the potential succession candidates you select are:

  • Interested in learning new skills
  • Comfortable with change
  • Motivated and engaged
  • Able to adapt to uncertainty and new working environments
  • Willing to take on more responsibilities
  • Up for a challenge

performance software

Now that we’ve discussed what business succession planning is, let’s take a look at what you need to include in your succession planning process.

Make sure your succession planning framework includes the following 5 key stages.

Define & Align Your Goals

The first step is creating a succession leadership plan. This means you need to define your goals and align them with your business. You may need to meet with senior leaders for this phase to ensure your goals are aligned with your overall strategy.

You also need to have a clear idea of who you are as a business before creating your succession leadership plan. Once you understand “who” you are, you will be better equipped to identify your potential new leaders.

Finally, to complete your plan, you need to:

  • Define the roles, skills, and experience that each successor will require (your succession profiles). Make sure you gather as much feedback on this as possible from your team to help you get a full picture of what you need to include in your succession plan.
  • Create a forecast of your company’s needs . Where do you need to be as a company within the next 5 years? How will your organizational structure change over this time? Think about your turnover trends, compensation strategies, who may be due to retire, and training and development plans for the future.
  • Update your job descriptions to reflect the information you’ve gathered. Make sure you are clear about your expectations . This will help you define the right candidate profiles for your succession plan.

kpi template for succession planning

Create Your Succession Strategy

Defining your goals is one part of your plan, but you also need to create a comprehensive succession planning strategy to make sure you are on the right track – you need a business strategy game plan !

So, what does this mean, exactly?

Put simply, you need to define a series of actions and strategic moves that help you align your succession goals and objectives with your overall HR strategy .

Consider the following:

  • Where do you want to be as a business? What roles, positions, skills and experience will you need to succeed?
  • Which senior/leadership roles do you need to create a succession plan for?
  • Will you take business succession planning into account during performance appraisals in order to identify potential candidates throughout the year?
  • Does your business have any specific vulnerabilities that may affect your succession plan? (For example, a high percentage of employees that are due to retire soon)
  • Have you considered adjusting your hiring strategy to account for successor roles?

The key here is to be as proactive as possible with your strategy. Anticipate potential gaps in your workforce before they occur.

Identify Potential Candidates

The next step is to evaluate your current workforce in order to identify key positions that may need filling in the future, and key employees that may be suitable replacements. This is where you will implement the succession profiles and job descriptions that you created in the previous step. The more information you include in your profiles and descriptions, the easier it will be to identify the right match within your existing workforce.

Generally speaking, the best candidates will be supportive, proactive, engaged with learning and development, great problem-solvers, adaptable and able to take on more responsibility.

It’s important to be as objective as possible in this stage. You also need to consider that potential candidates may not currently be in leadership roles. It’s all about finding potential. The most effective way to do this is by using succession planning tools and metrics, rather than relying on personal opinions. More on this shortly.

Establish Professional Development Opportunities

As soon as you have your list of potential candidates and you know what skills they need to work on in order to eventually fill the role you have matched them to, it’s time to create a professional development plan to help them get where they need to be.

Which skills does each candidate need to develop? What learning opportunities would help them get the right experience and expand their current skillset? Are there any knowledge gaps that you need to address?

Create a list of the skills each candidate currently has vs. the skills they need to acquire, then work out the best way to offer them suitable opportunities for learning and development. Create individual development plans, offer formal training, consider creating a mentoring or coaching program to support them, and encourage continuous feedback and communication.

Implement Your Plan

The final stage is implementing your business succession plan. This will usually be a gradual transition with multiple short and long-term layers.

The first layer involves officially announcing your succession plan and notifying potential candidates. You then need to roll out your individual development plans and arrange training. Introduce candidates to their mentors, if you are using them, and encourage them to meet regularly. This will show your employees that you support their professional development, and you can see that they have potential.

Most importantly, make sure you collect regular feedback to see how your individual development plans are progressing, and if potential candidates are on track to reach their succession objectives.

Here are a few business succession planning best practices to help you create a plan that sets you up for success:

  • Formalize your plan . The sooner you create and formalize a detailed succession management plan, the better. Make sure your succession planning process focuses on all key stages. That means not just identifying the roles and skills you need for your future leaders, but also implementing individual development plans to get your workforce where they need to be.
  • Make sure your succession planning in HR plan is dynamic . Succession planning is all about change management. Be prepared to adapt to change by constantly updating your plan.
  • Collect regular 360-degree feedback . This will help you keep track of your employees’ interests, skills, performance, strengths, weaknesses, and opportunities.
  • Promote open communication . This will help you build trust and set clear expectations.
  • Consider your entire workforce . Don’t just focus on your managers. Your leaders of the future might be hiding in lower-level positions. Look for potential, not existing skills.

One of the most valuable tools you can use for this strategy is a succession planning template. The right template will help you define key roles within your company and identify suitable replacements. Make sure you include a template in your HR audit checklist (check out this HR audit checklist template if you don’t already have one!)

Here are a few examples of the information you can collect with a succession plan template:

  • Current key employees and potential replacements
  • Key skills and experience that each position requires
  • Candidate training and/or experience level
  • The time it would take to onboard a candidate for an existing position
  • An overview of upcoming vacancies (for example, key employees that are due to retire)

hr audit checklist

In order to create and manage an effective business succession planning strategy, you need to use the right succession planning tools. These are the tools that will help you identify which candidates could potentially be future leaders at your organization. They also help you identify potential succession gaps and map the right candidates to the right positions.

Ideally, you should be using a range of tools to help you get a full picture. Here are a few examples of succession planning assessment tools that will help you with this:

  • Personality assessment tools : to help you get a comprehensive picture of your existing culture (e.g. tools for tracking motivation levels)
  • Behavioral assessment tools : to help you identify and analyze employee leadership skills and assess how they behave at work (e.g. situational judgment tests)
  • Cognitive assessment tools : to evaluate critical thinking and reasoning skills related to performance (e.g. a cognitive aptitude test)
  • 360-degree feedback : to gather valuable input from employees and their peers in order to understand their readiness to take on future roles (included in most performance management software solutions)

Succession Planning Software

Finally, once you have designed and implemented your business succession plan, you need to regularly monitor progress. This will help you determine if your plan is working and if potential candidates are on track to reach their succession goals.

And this is where succession planning software can help.

Succession planning software isn’t as daunting as it sounds. In fact, most HRIS systems can provide you with the data you need.

The first thing you need is access to key metrics and KPIs . This includes turnover rates, retention rates, cost-per-hire, time-per-hire, and the rate of planned positions being filled. You also need to evaluate performance metrics to determine if business succession planning candidates that have taken on their new role were ready for it.

Did they achieve the training and experience they needed during the development phase in order to take on their new leadership role? If not, what could you have done better?

By analyzing the right data, you can determine what areas of your business succession planning strategy you need to work on in order to continuously improve the quality of your succession candidates. And by using the right HR software and performance management software you can easily identify talent gaps, make comparisons between employees, and simplify the succession management process.

' src=

Related posts

shift swapping

Shift Swapping: How to reschedule, trade, and swap employee shifts the right way

succession plan of the business

New Overtime Rules 2024: Everything Employers Need to Know

succession plan of the business

Boost your HR with software

See how Factorial powers productivity, engagement, and employee retention.

Book a free demo

Your Business Needs a Succession Plan: Here Are the Basics

Succession planning may be the single-most neglected aspect of business ownership. Don’t make the same mistake that so many others do. Instead, get started with your plans today.

  • Newsletter sign up Newsletter

A man stands alone in a boardroom

In Part 1 and Part 2 of this series on selling your business, we’ve examined the questions facing owners who entered 2020 ready to make their move, breaking down how the COVID-19 pandemic changes the situation and how to increase a business’s value if you decide to delay bringing it to market. There’s another way forward, though — standing pat and not selling.

Tax Wrinkles for Work-at-Home Employees During COVID-19

If you were a business owner who was considering putting your company on the market but decided not to sell (or at least not anytime soon), what steps should be you taking now? The goals are to ensure preservation of the current business, as well as provide for an orderly and stable future transition when the proper time to sell arrives. Accordingly, the first and most critical step is setting a goal to implement both a business continuity plan and a business succession plan. The sooner, the better.

We have all learned a valuable lesson from the COVID-19 pandemic: A significant business disruption can happen with very little advance notice, and not being prepared can be disastrous.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Developing a Business Continuity Plan

Armed now with the knowledge of how the pandemic impacted your own business operations, you can now plan. Did the travel restrictions impair your sales efforts? Did the substantial increase in employees working remotely overburden your IT infrastructure? Did your vendors and suppliers make requests that you couldn’t respond to effectively?

The goal of a business continuity plan is to identify that which is essential and that which is not and to place the business in a position where it can continue to operate during a disruption. Ideally, the business continuity plan would include:

  • A comprehensive strategy for keeping the business operating day-to-day.
  • An assessment of essential and non-essential operations and processes.
  • An analysis of key employees/positions and how each would be impacted by a disruption and, specifically, the potential loss or unavailability of key employees.
  • A review of facilities and analysis of how the business operates if one or more location becomes unavailable.
  • A plan to protect, secure, back up and replicate, if necessary, critical data systems, infrastructure and applications.

These are only a few of the many issues for consideration when developing a business continuity plan. Many of the details are industry-specific, and you need to work with your key employees and advisers to address the challenges likely to face your particular industry. Consider meeting and discussing with your vendors, customers and suppliers the challenges that were presented by the COVID-19 restrictions. Get their views on how things could have been handled more effectively. Information is key to developing a plan that will actually work.

There’s Never Been a Better Time for Business Owners to Make a Move

Once you develop a plan, revisit it regularly and adjust and update it so that it is always ready to go when you need it. If, for example, your CFO retires, you will need to consider how the loss of that person and their particular knowledge will affect the plan. Will their successor have the wealth of historical knowledge necessary to obtain and transfer information in a timely manner? If not, consider how you address the gap. Every organization seems to have those “go-to” people who have been there forever and without whom things run much less smoothly. Consider how the plan is impacted if those individuals are unavailable. The key takeaway is that the plan needs to grow and change with the business in order to work effectively when the disruption happens.

Developing a Business Succession Plan

No matter what your plans are for the future of the business, eventually, you will transition it to someone. Perhaps that someone is a purchaser, or perhaps you will transition to your family, key employees or some combination of the two groups. The point is that transition will eventually be unavoidable. Ideally, you get to control and be part of the process. That, however, is not always the case. Unexpected death of an owner, key executive or employee can cripple a business if no successor has been identified and there is no plan for transitioning management.

Every business succession plan looks different. Not every business owner wants to transition their business in the same way or at the same time. Some owners want to exit completely at a certain date. Others want to stay involved to a lesser degree over time but never exit entirely. These issues, as well as many others, must be considered. The plan should be designed to:

  • Address anticipated timing.
  • Identify one or more successor.
  • Address the value of the business.
  • Provide for implementation of the plan.
  • Discuss communication with employees, customers and family.
  • Include tax planning.
  • Provide for contingencies.

In my long career as a business lawyer, I have observed that succession planning is the single-most neglected aspect of business ownership. Maybe it’s human nature to think that we’ll always have time to deal with it later. The truth is, if you don’t get around to it and the unexpected occurs, the impact on your family and employees could be devastating. Also, we see many executive job candidates asking about a company’s transition planning before they are ready to commit to working there. Lack of a transition plan can therefore have a negative impact on attracting and retaining talented employees and executives.

The best way to approach the process, in my experience, is by dedicating a year to the effort. Spend three or four months discussing the process with your family, executive employees, your bank and other key stakeholders. Get your lawyer and accountant or other tax adviser involved from the outset. Develop and refine the plan over the next few months, and implement it over the last three or four months. One year is what you need. Negotiate the fees with your professional advisers in advance and get a budget for each phase. When it’s done, you’ll thank yourself, and your business will be better off for having gone through the process.

Final thoughts

As touched on in this article and the other parts of this series, the COVID-19 pandemic was and remains a major disruption that couldn’t have been foreseen by most business owners at the start of 2020. The confusion of the early days, however, is beginning to clear. For owners who were planning for a transition, there is path forward — be it bringing the business to a changed market, delaying the decision or staying put for a time.

No matter the decision, proper preparation and organization will make it easier.

Help! I Can’t Afford to Sell My Business

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA .

To continue reading this article please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

Patricia Farrell is a corporate law attorney in Pittsburgh. With a primary practice in business services, she regularly represents privately held businesses in mergers, acquisitions, divestitures and other major transactions, both in the United States and in Europe, Asia and Australia. She also has a broad corporate practice where she assists with corporate governance as well as succession planning for business owners and a variety of other day-to-day business issues.

A soldier salutes her young daughter, who's wearing the soldier's uniform cap.

Benefits for those who serve in the U.S. military can sometimes be complex and confusing. Here’s what to know about how to optimize some of them.

By Zach Mindel Published 9 May 24

A woman puts a coin into a piggy bank.

Save on taxes and donate more to your favorite charities by using a donor-advised fund, or DAF. Here’s how to maximize your giving with this strategic approach.

By Samuel V. Gaeta, CFP® Published 9 May 24

An older couple have a serious talk while sitting on the sofa together.

Investors should expect volatility but also try not to overreact to news. To prepare, focus now on tax minimization, protecting your portfolio and more.

By Barry H. Spencer, Registered Investment Adviser Published 8 May 24

A woman puts a coin in a piggy bank.

Pursuing financial literacy and taking advantage of savings opportunities, such as employer-offered 401(k)s, can give women saving for retirement a leg up.

By Jay Dorso Published 8 May 24

An older man looks at an AI chatbot.

With AI on the horizon to enable the optimization of retirement income plan choices, the retirement fortunes of retirees are about to improve.

By Jerry Golden, Investment Adviser Representative Published 7 May 24

Puzzle pieces spell out the words asset allocation.

Investing decisions can be daunting, but following this five-step process can make it easier to figure out how to allocate your investments.

By Carol A. Bogosian, ASA Published 7 May 24

A man sitting at his desk looks like he just woke up, a piece of toast sticking to his face.

A previous article struck a chord with readers internationally — and lawyers — and the advice we shared has worked well.

By H. Dennis Beaver, Esq. Published 7 May 24

A walkway between two homes in Milan.

Owning a property in Italy where you can stay when you visit and rent out when you’re not there requires very careful planning.

By Davide Migali Published 6 May 24

  • Contact Future's experts
  • Terms and Conditions
  • Privacy Policy
  • Cookie Policy
  • Advertise with us

Kiplinger is part of Future plc, an international media group and leading digital publisher. Visit our corporate site . © Future US, Inc. Full 7th Floor, 130 West 42nd Street, New York, NY 10036.

succession plan of the business

  • Employee Success Platform Improve engagement, inspire performance, and build a magnetic culture.
  • Engagement Survey
  • Lifecycle Surveys
  • Pulse Surveys
  • Action Planning
  • Recognition
  • Talent Reviews
  • Succession Planning
  • Expert-Informed AI
  • Seamless Integrations
  • Award-Winning Service
  • Robust Analytics
  • Scale Employee Success with AI
  • Drive Employee Retention
  • Identify and Develop Top Talent
  • Build High Performing Teams
  • Increase Strategic Alignment
  • Manage Remote Teams
  • Improve Employee Engagement
  • Customer Success Stories
  • Customer Experience
  • Customer Advisory Board
  • Not Another Employee Engagement Trends Report
  • Everyone Owns Employee Success
  • Employee Success ROI Calculator
  • Employee Retention Quiz
  • Ebooks & Templates
  • Leadership Team
  • Partnerships
  • Best Places to Work
  • Request a Demo

Request a Demo

The Complete Succession Planning Guide for HR Professionals

the importance of succession planning

Table of Contents

What is succession planning, why is succession planning important, how to create a succession plan, the key features of succession planning software, simplify your succession planning process with quantum workplace.

The Complete Succession Planning Guide for HR Professionals

In today's competitive business landscape, organizations recognize the critical importance of succession planning as a strategic initiative for talent retention and development. As the demand for skilled professionals continues to rise, succession planning enables companies to proactively identify, nurture, and retain high-potential employees. 

By cultivating a robust pipeline of internal talent, organizations not only ensure a seamless transition of leadership but also foster a culture of growth, engagement, and professional development. 

Fortunately, succession planning makes it easy to plan for the unexpected and replace top talent seamlessly.

In this article, we’ll cover what succession planning is, why it’s important, how to build your succession plan, and how to utilize technology to implement your succession plan at scale within your organization.

succession plan of the business

Succession planning is the process of identifying the critical positions within your organization and developing action plans for high-performing individuals to be ready to fill those positions. It ensures you have the right people, in the right jobs, at the right time—today and tomorrow. 

Done well, succession planning helps organizations be ready when talent needs arise. It guides talent development over time and identifies talent risk.

But succession planning is so much more than simply picking replacements—leaders need to understand how open positions and bad hiring decisions can potentially impact the company. 

An effective succession plan equips identified successors with the skills and competencies needed in their future role. 

By using a customized development plan, you can promote employee growth and ensure your successors make the right impact. Not to mention, the right succession planning tool enables you to utilize objective metrics—like performance reviews and engagement scores—to help you fill open positions when top leaders leave.

Succession planning should never be an afterthought. That’s because succession planning plays a critical role in the long-term success and sustainability of your organization. 

Your plan provides you with a strategic initiative to proactively address talent gaps, minimize business disruptions, and foster a culture of career growth and development. Your succession plan is key for long-term business success. 

Here are 8 top reasons why succession planning is critical to your business:

1. Provides a guideline for training and development

The right succession plan will guide your training and development plans and prepare high-potential employees for their future role. Your succession plan will highlight areas for growth so they can develop critical skill sets, empowering them to thrive now and in the future.

Development and training for succession planning isn’t the only benefit to be found. In fact, our research shows that 79% of employees who had access to a formal development program were engaged (compared to only 58% of employees whose organization didn’t have a formal program).

Of employees who participate in learning and development opportunities : 

  • 71% feel motivated
  • 55% feel empowered
  • 64% feel more equipped to do their job

While succession planning is one reason to invest in development and training, it’s certainly not the only high-potential benefit.

2. Reduces costs to recruit and hire talent

The costs associated with recruiting and hiring top talent will soar if you don’t have a plan in place. If top roles go unfilled for too long, you might be forced to make rushed and costly hiring decisions, only to regret them later. 

Hiring top talent typically requires bonus offerings and relocation costs. And when you aren’t confident in your replacement, your business may continue to lose money. By shaping a talent pipeline, you’ll safeguard the return on your hiring investment with sound successors. 

In the case that your successors come from within the company, you won’t need to recruit externally, which reduces costs further. You’ll be able to invest the money you save elsewhere—like in training and development.

3. Identifies key leaders

With the right approach to succession planning, you can identify, develop, and retain key employees who might perform well in top roles. This way, you can measure all of your options and make the best decisions when it comes to successors. Plus, you can ensure your succession pool aligns with your diversity and inclusion goals. 

Utilizing reporting and metrics to connect performance, development, and engagement is one of the most critical elements of a high impact succession plan .

4. Promotes long-term planning

Businesses that aim for long-term success need long-term plans. In the face of rapid change, you need strategic plans to guide your actions. With a thorough succession plan, you’ll create a path to retirement for top leaders and ensure their expertise is transferred to their successor. As you outline clear plans, you’ll be better equipped to grow and evolve as a successful organization. 

5. Mitigates risk

Succession planning helps you protect your company. Let’s face it, your top leaders may be swayed to leave for higher pay or be affected by a serious illness, for example. Critical roles aren’t always top ones when it comes to business risk and continuity. Think: the head of cybersecurity or your lead software engineer who knows the code like the back of her hand. 

Whatever the case, when critical roles within your organization go unfilled for too long, your business success may be put in jeopardy. 

But with succession planning, you’ll have a plan when change happens so that your business isn’t vulnerable.

6. Establishes your legacy

When leaders are aware of their successors, they’re able to provide mentorship and share knowledge. This way, when top leaders exit, their contributions and impact won’t leave with them. All the hard work put in throughout the years will be translated into future efforts of their successor, so your leaders can leave a lasting mark on the organization.

7. Shapes an exit strategy

Succession plans ensure leadership exits are smooth, seamless, and non-detrimental to profitability. An effective plan outlines replacements for key people so that your business can run properly when they leave. If you're blindsided by top talent loss and have no back-up plan, your business is likely to face negative impact.

8. Promotes progression

Succession planning helps you shape the mindset that’s key for continuity. While replacement identification is important, succession planning promotes big-picture growth. When leaders continually think about how certain events can affect the business as a whole, they’ll be more agile and resilient in the face of unexpected events. Now that you understand some of the key benefits of succession planning, it’s time to build your strategy!

If you’re in charge of crafting the succession plan for your business - fear not! While every organization is different, the recipe for a successful succession plan is similar no matter how complex your organization is. 

Here are the steps to create a succession plan:

Succession plan checklist-2

1. Identify critical roles to plan for

The first step in a succession plan is to identify the key positions within the organization that are critical for its continued success. Sometimes these positions are leadership roles. Sometimes, they’re mid-level. No matter what the title is, you should identify roles where the operation, strategy, and decision-making of your organization would be dramatically affected if they were to be suddenly empty.

Here are some guidelines on how to identify critical roles for succession planning:

  • It has a high impact on business operations: You’ll want to consider roles that have a significant impact on the organization's core operations, strategic initiatives, and overall performance.
  • It involves a high level of leadership and decision-making: Be sure to identify roles that involve critical decision-making authority and require strong leadership skills to effectively guide teams and drive results.
  • It requires specialized expertise, training, or experience: As you know, the talent pool for certain areas of expertise is getting smaller and smaller. You’ll want to consider those roles that require specialized knowledge, unique skill sets, or industry-specific expertise. Which brings us to….
  • There is a high talent scarcity or risk: Evaluate roles where there may be a scarcity of talent in the external market or a higher risk of succession gaps, such as positions with specific technical requirements or leadership demands.
  • It’s required for future organizational success: It can be hard to anticipate the future needs of your business, but it’s critical to do so when succession planning. Identify those roles that will be pivotal for achieving long-term goals and addressing emerging challenges or opportunities.

2. Define your succession criteria

Once you have your critical roles identified, it’s time to establish your succession criteria. But what does that mean? 

Succession criteria are the skillsets, competencies, experiences, and training required for your potential successors. These criteria act as your benchmark for evaluating the readiness of candidates to fill your roles. 

It’s possible that the criteria may be different based on the role you’re looking to plan for. Here are some examples of criteria you may want to consider:

  • Core competencies required for the role including both technical and leadership capabilities.
  • The employee’s experience level and track record within the organization as a whole.
  • The employee’s professional goals drive success and contribute to the long-term success and vision of the organization. 

3. Complete a talent assessment

Now that you have your roles and criteria defined, it’s time to complete a talent assessment. Your succession plan will require you to assess your talent pool within the organization to identify potential successors. This assessment includes evaluating employees' performance, potential, and readiness to take on higher-level responsibilities. This is where your criteria comes into play. 

4. Implement talent development and training

Now that you have your talent pool based on your assessment, you can refocus your efforts on development and training . This usually involves creating a personalized development plan for your candidates to enhance their skills, knowledge, and competencies required for future leadership roles.

There is an overwhelming need for businesses to invest in career growth and development. Our research shows the top three opportunities employees want include leadership development programs, cross training, and skills-based training for an advanced role.

5. Scale your mentoring, coaching, and one-on-ones

Remember, talent development is never a one-and-done investment. Be sure to provide mentoring, coaching, and regular one-on-one opportunities to your potential successors. Ongoing development is an integral part of your succession plan. Seasoned leaders within the organization can guide and support successors in their professional growth, sharing their knowledge and experiences to help them prepare for future leadership positions.

6. Review and monitor your succession plan

Regularly reviewing and monitoring the progress of the succession plan is crucial. This usually involves tracking the development and performance of potential successors, evaluating their readiness for advancement, and making adjustments to the plan as needed. Succession planning technology can make this process much easier by providing tools for you to set criteria, identify candidates, and implement development strategies before there is a desperate need to fill an empty role.

7. Develop your knowledge transfer process

Once your successor is identified and ready to assume a critical role, your succession plan should include a clear, standardized transition process. This process will look different for every role. But it’s likely to include a comprehensive handover of responsibilities and knowledge transfer, which will ensure a smooth transfer of leadership and decision-making authority.

8. Continuously update your plan over time

Just like any successful HR initiative, a successful succession plan requires continuous evaluation and refinement. Use your succession planning technology to collect continuous feedback from stakeholders, analyze the plan's effectiveness, and implement adjustments based on changing organizational needs. 

Remember - a great succession plan isn’t made on the fly. And succession planning offers an incredible opportunity to boost talent growth and development from within your existing employee base.

If you’ve been managing your succession plan with disparate software systems, spreadsheets, and email threads, it may be time for an upgrade. Succession planning software makes your succession plan easy to build, launch, and scale over time.

By leveraging the capabilities of succession planning software , you’re one step closer to a seamless and efficient succession plan.

Modern technology can take the pain out of the process and streamline your succession strategy. With the right tools, you can propel employee growth, guide change, and drive business success. These are the top benefits of a comprehensive succession planning tool:

1. Evaluates talent readiness

Succession planning has traditionally been an HR responsibility. But managers most directly influence the development of identified successors. You need a succession planning process that empowers managers to take an active role in successor development—and that holds them accountable for movement.

To make the best hiring decisions, leaders need to be able to visualize their talent all in one place and understand the full scope of each individual’s skill set. With the right tools, you can identify your highest potential talent and include them in your succession plans. 

Most traditional succession planning tools evaluate talent readiness in multi-year increments:

  • Ready in 1-2 years
  • Ready in 3-5 years
  • Ready in 5-7 years

But it’s too difficult to drive action and make adjustments with this model. To do that, your process must focus on development in smaller increments. A better practice is to evaluate talent readiness in 12-month increments, such as:

  • Ready in 12 months
  • Ready in 24 months
  • Ready in 36 months
  • On the radar

These 12-month increments help managers take a more active and tangible role in successor development. By focusing on a smaller span of time, it’s easier to build a development plan and to measure the success of that plan. Smaller increments of time also help hold managers accountable for intentional development that drives employees toward readiness. 

For example, let’s say Susan needs to focus on two specific areas to be ready for a VP of Sales role in 12 months. Susan’s manager should be working with her on a development plan that drives her toward “Ready Now.” If, after 12 months, her readiness hasn’t changed, her manager should be held accountable for that lack of movement.

talent-readiness_Succession-planning-1-01

2. Regularly checks in on talent development

To help guide successors on their journey to a future role, you need to understand where they are today and their overall trajectory. And you need to check in along the way. Two ways to do this are to sync your success planning conversations with talent review data and documented development goals.

Syncing succession planning and talent reviews

Think about your talent reviews as a regular check-in on succession plans. Quarterly talent reviews help you evaluate and measure successor growth and development along the way. By understanding successor impact, growth trajectory, and retention risk, you can be more agile and adjust your succession plans as needed. 

A robust succession planning platform will work seamlessly with your talent reviews and employee goals. When you’re able to measure and align performance with your succession plans, you can identify the right talent and ensure they’re growing. This way, you can create continuity in critical roles and drive business success for years to come. 

Syncing succession planning and development goals

A key result of your succession planning process should be developmental goals for potential successors. Goals and stretch projects can be another measurement of candidate readiness. With goal tracking, leaders can see how a potential successor approaches new opportunities and can help plan for future transitions.

The right platform will bring employee skills gaps to the surface when they are identified as successors. This way, you can promote growth and development in the areas that matter. When employees are prepared to fill critical roles, you’ll be able to conduct business as usual in the face of leadership loss. 

Succession-Planning-2 2-1

3. Monitors your talent risk

The work is not done once your succession plan is created. You need to actively evaluate areas of risk within your plan. Be sure your succession planning tool integrates with your HRIS data—and that it’s set up to send alerts around key insights and events like:

  • A critical role is empty
  • A role has no identified successor
  • A successor is being considered for multiple roles

If you have multiple successors being considered for one role, be proactive about the development plans of the ones who don’t end up getting the role. You want to prevent attrition of those high potential team members—and keep them engaged and motivated to potentially fill future roles.

The same applies to successors who are “Ready Now” for a role that isn’t open. You’ll want to keep them challenged with stretch projects, interim positions, committees, etc.

Remember: Succession planning is not a one-and-done initiative. It’s essential to recognize that succession planning requires continuous evaluation, adjustment, and monitoring to align with organizational changes, evolving talent needs, and emerging leadership trends. Succession planning software enables you to regularly review and refine your talent pool over time.

Succession-Planning-6

4. Provides reporting on your DEI aspirations

Checking your succession plan against your DEI goals helps you work smarter, not harder. It’s important to consider the implications of your future plans on your diversity and inclusion initiatives and metrics. But keeping track of diversity metrics and plans can be tiresome and inconclusive without the right technology. A robust succession platform enables you to keep a pulse on your metrics and ensure that your top positions are filled with inclusivity in mind. 

You may want to:

  • See younger generations developed for leadership
  • Ensure accurate distribution of roles across locations
  • See higher gender or ethnic diversity on your leadership team

Promoting diversity and inclusion in succession planning can be a challenge for organizations striving for equitable representation in leadership positions. It is crucial to proactively identify and address biases, provide equal opportunities for underrepresented groups, and leverage tools and technologies that support diversity analytics to ensure fair and inclusive succession planning processes.

Regardless of what you’re trying to achieve, a strong succession plan should align with your diversity, equity, and inclusion goals.

5. Tracks the success of your plan

A succession plan is most successful when leaders and managers regularly review and optimize the plan. You should track completed successions as they happen. And the status and progress of the plan should always be up-to-date and easy for leaders across the organization to view and understand.

Succession-Planning-4

6. Provides visibility & makes it easy to collaborate.

Collaboration is critical. And that’s why you should look for a tool that not only provides insightful reporting, but the ability for HR and key stakeholders to communicate centrally. Collaboration tools can help you streamline the nomination process and reduce administrative burden.

A savvy solution will allow multiple users to nominate candidates for a single role simultaneously. This facilitates collective input and diverse perspectives in the succession planning process.

But what about visibility concerns?

Make sure you select a tool that provides controlled access and restricts sensitive information to authorized individuals. This will enable you to maintain confidentiality at the top of the organization while fostering transparency and  collaboration within your designated user groups.

7. Enables solid decision making when talent leaves

When your top leaders unexpectedly, it’s important to have a plan in place so you’re not scrambling to fill their role. Effective technology identifies the best fit for each role to make sound, measured hiring decisions and reduce negative business impact when key players leave.  

One of the biggest reasons that succession plans fail is that the organization has a limited pool of qualified individuals ready to step into critical roles. 

But it’s possible to proactively address this. Use your technology to identify and then implement talent development programs that focus on nurturing your high-potential employees, providing them with opportunities for growth, and aligning their development plans with the organization's succession needs. This helps expand the pool of potential successors over time. Not to mention, your software can help you identify gaps in training so you can make the best decisions when your talent leaves. 

8. Provides on-demand reporting for your investors

Succession planning is a must, especially when your company is publicly traded. A streamlined tool will keep your succession plan up to date, ready, and at your investors’ fingertips to illustrate your business’s longevity. 

Cultivating a robust pipeline of internal talent to nurture, develop, and retain is more critical than ever. In fact, some industries— like credit unions —are now requiring organizations to establish succession plans. But you’re not alone if you feel like your organization hasn’t found a process you’re confident in.

Many leaders have yet to figure out the best way to navigate succession planning, spending too many hours in spreadsheets that go nowhere. What’s troubling is that the most important part of a succession plan—the actual plan!—is often overlooked.

The right tools can help you navigate succession planning like a well-oiled machine. Quantum Workplace’s succession planning tool helps ensure you have the right people in the right jobs at the right time, today and in the future. It syncs seamlessly with Quantum Workplace Talent Reviews & Goals to identify and develop your best talent and create continuity in your most critical roles.

Learn more about how Quantum Workplace can help you:

  • Capture talent, interest, and readiness to find the best successors for critical roles
  • Help successors grow and develop so they’re ready when called upon
  • Ensure your successor pool aligns with your diversity and inclusion aspirations
  • Make sound decisions when critical talent leaves
  • Provide a board-ready succession plan at your fingertips when you need it

Simple and intuitive succession planning tools help you elevate top performers, identify talent risk and pinpoint successors. Book a demo to see how our succession planning platform will work for you and your business. 

Book a demo: Succession Planning

Published July 11, 2023 | Written By Kristin Ryba

Related Content

Turnover eBook cover

eBook: How to Keep your Best Talent

succession plan of the business

Blog: Employee Development Opportunities That Work

How to Keep Your Top Talent: Approaching Retention with Intention

Webinar: How to Keep Your Top Talent

succession plan of the business

Blog: The Big List of Employee Perks: 45 Perks to Attract and Retain Talent

Quick links.

  • Performance
  • Intelligence

Subscribe to Our Blog

button to download employee engagement trends report

View more resources on Employee Lifecycle

5 Considerations for Your Succession Planning Process

5 Considerations for Your Succession Planning Process

4 minute read

[New Hire Checklist] 19 Ways to Make a Great First (and Lasting) Impression

[New Hire Checklist] 19 Ways to Make a Great First (and Lasting) Impression

Pros and Cons of Exit Interviews and Surveys

Pros and Cons of Exit Interviews and Surveys

6 minute read

  • All Resources
  • Privacy Policy
  • Terms of Use
  • Terms of Service

succession plan of the business

PKF O'Connor Davies

Planning for the Succession of Your Business: Step by Step

By Cynthia Adams Harrison, Managing Director—Center for Private Business Owners

Owners of privately held businesses who think about succession are very often confused or intimidated about how to start. It can seem overwhelming, and procrastination is sometimes the default for those who already have the huge responsibilities involved with running a business.

Below we provide ten step-by-step tips designed to help guide you through the process of succession planning for your business.

Research effective succession planning processes and approaches and understand best practices for private businesses. Replay our recent webinar for additional insight: Value Series for Private Business Owners: Getting Your House In Order – Preparing for Business Succession .

You can’t do this on your own. Engage a trusted advisor to recommend external expertise. There are professionals who can work together as a multi-disciplinary team to streamline succession steps. We highly recommend having a family business advisor to coordinate all the multi-function efforts.

2. Decide what is possible and what is not

It’s common for owners of privately held businesses to believe that if they don’t have family members to take over their business, then the only option is to sell. Sometimes this is true. Often, however, other arrangements and new leadership can ultimately continue a family business legacy and create a bridge for the next generation.

The most important factor for you as an owner to consider is making sure you’re doing all you can to create business value. Waiting too long or not long enough for succession planning could ultimately decrease value, which is unnecessary and irresponsible.

Brainstorming ideas and realities with a trusted advisor often leads to effective outcomes.

3. Assess the health of the business

Reviewing all financial, strategic and operational functions of the business is integral to understanding what needs to be improved and how current and potential value will drive decision-making.

4. Assess personal and business financial readiness for a transition

The succession process moves through different stages and action steps and must be designed to meet your needs as owner and those of your business. Decisions must reflect that both your personal needs and the health of the business are complementary to desired outcomes.

5. Speak with your significant other, partner or spouse

As you begin to learn more about succession and have brainstormed ideas with a professional, share what you have learned with your partner or spouse. If there are children involved through biological, adoption or blended families, considerations must be made concerning family relationships, and your partner or spouse will have an opinion. Get them involved early in the process. We cannot state more clearly the importance of this.

6. Assess the interest and skill sets for key leadership positions

Succession planning is the perfect time to assess key leadership positions and roles. Reviewing what has been effective and what needs to be implemented for future growth are opportunities to secure a strong leadership team for the future, family and non-family.

7. Effectively frame the initial conversation with family members and non-family senior leadership

Planning how you frame the initial conversation with family members will be important. Change in any form, even positive, can bring stress and uncertainty. If you organize the meeting with a confident and thoughtful agenda, it will go a long way to ease family members into the discussion.

This holds true for introducing succession planning to key non-family senior leadership. Make sure these stakeholders are also aware of your timeline and the need to keep this information confidential until you are ready to disclose the plan to other employees. The timing of when you disclose this information is as important as how you do it.

8. Educate family and non-family senior leadership on the outline of a plan

Succession is unique for each private business owner and their families. Reviewing with family members the process you have been engaged in and considerations that were made, as well as asking for their input, will be helpful so they are aligned and understand the reasoning behind the planning. As a result, your family will most likely be helpful in supporting you through the process.

Again, outline your process and considerations for non-family key senior leadership and ask for their suggestions in the planning process and execution of the plan.

9. Create a transparent transition plan with reasonable timelines … then stick to it

A succession plan which is detailed, action driven and reflects accountability will be easy to follow and implement.

10. Integrate the plan into the day-to-day activities to increase its effectiveness and maintain momentum

Scheduling routine meetings and activities to help keep everyone on task will go a long way to assure that succession goals and objectives are met.

Get Started

Succession planning can be intimidating and seem complicated for many busy business owners, but following our ten step-by-step tips should help get you started. With effective support, external expertise, and a thoughtful road map, successful planning can continue the family legacy and create exciting new chapters for your cherished business.

If you have any questions, please contact your PKF O’Connor Davies client service team or:

Cynthia Adams Harrison , Ed. D., LICSW Managing Director Center for Private Business Owners [email protected] | 914.575.2744

  • Grow With Us
  • Succession Solutions
  • (734) 272-4224
  • Client Login
  • Independent Financial Planning
  • Retirement Planning
  • Investment Management
  • 401(K) Management
  • Estate Planning
  • Tax Planning
  • Value Based Investing
  • College Planning
  • Second Opinion
  • University of Michigan
  • Our Process
  • Client Advisory Council
  • Your Business
  • Your Retirement
  • Your Legacy
  • Your Freedom
  • Market & Investments
  • In the News
  • Case Studies
  • Risk Survey
  • Retirement Readiness Quiz
  • SECURE Act RMD Calculator
  • 401(K) CALCULATOR
  • Roth vs. Traditional IRA Calculator
  • College Readiness Quiz

Building Your Ideal Business Succession Plan

Father and son standing in the kitchen of their pizzeria.

By Odaro Aisueni, CFP ® , Wealth Planning Administrator

As a small business owner, you’re likely so immersed in the routine functions of your business that you haven’t yet put much thought into the day you leave it behind. In fact, most small business owners have so much purpose tied up within the business that the thought of bringing their time to a close can be daunting.

Yet while succession planning is often overlooked, it holds immense significance for your future well-being. A well-crafted succession plan ensures a smooth transition and guarantees the long-term viability and prosperity of your organization while ensuring you’re financially equipped for your ideal retirement.

Whether you’re hoping to pass your family-owned business to the next generation, a thriving solo practitioner aiming to cultivate internal talent, or you’re considering a third-party sale, developing a comprehensive succession plan is essential. Here are some key insights that will help you navigate this critical process to safeguard the future of your business.

Succession Planning Should Start Earlier Than You Think

One of my former accounting professors shared a thought that has stuck with me, “Every company has an expiration date.” Translation: You have to accept there will be a transition at some point. To accomplish this on your terms, I encourage business owners to consider succession planning as something that begins the day they start their business – it’s not that you’re ready to transition out immediately, but rather that you’re building your business with a successful end in mind.

Most small business owners understandably have a powerful emotional tie to the organization they’ve built. Yet, at the end of the day it is a business – and it’s where many owners have most of their assets.

So, from an economic standpoint, it’s essential to plan for the future as that’s likely where you will realize the bulk of your lifetime wealth. The best advice? Start succession planning as soon as you start the business, or as I like to say: “now.”

Key Components of a Successful Business Succession Plan

The term “succession planning” sounds vague, which is another reason it’s easy to put off. It might help to start thinking about the areas you’ll need to consider. A succession plan should have four key components, many of which are intertwined:

Timing:  While I mentioned that the time to start should be now, this aspect relates to when you want your transition complete while recognizing the timeline might shift. Ideally, you’ll be considering a distant timeframe – such as a 10- to 20-year period, rather than six months or a year. The longer the interval, the more options you’ll have as you consider strategies to build your business’s value.

Compensation: This refers to how you intend to be compensated for the business. There are multiple alternatives with different benefits, which is why it’s critical to discuss the pros and cons with a financial planner. Many owners choose to sell the business outright to a family member, an executive or a third party; while others prefer deferred compensation as they stay involved. One popular option is setting up an employee stock ownership plan (ESOP), where employees are technically buying equity in the business through a retirement plan. That can also help to retain key talent since equity promotes a sense of ownership, which can lead to loyalty and improved performance.

Tax planning: This aspect must go hand in hand with your desired compensation, as the impact the sale has on your taxes may point you toward extending your payout, rather than taking a lump sum. Remember, the number that matters is not how much you sell the company for, but how much you end up with in your pocket.

Estate planning: The family impact of your succession plan is greater than most business owners appreciate. We often see a scenario where someone has been running an organization for 20 years and something suddenly happens to them, leaving the family with a company they aren’t equipped to oversee. With solid planning, you can avoid putting a family member in the difficult position of assuming control of something they aren’t qualified for or interested in. One common option is arranging a buy/sell agreement with another owner so the family member can be compensated, and the other individual is given direct control of the business to continue to keep it viable.

How Succession Planning Affects Personal Financial Interests

It’s not an exaggeration to say that small business owners have collectively lost out on billions of dollars due to a lack of early succession planning. While every small business is different, many are considered “lifestyle practices,” in that they are owned and managed by the founder or sole proprietor who usually maintains the status quo without expanding headcount or revenue. As the sole proprietor approaches retirement age, the business begins to wind down too.

However, that doesn’t have to be the case. With a proactive exit plan, these business owners could enjoy both personal and financial benefits by exiting more gracefully and building the company’s value so it can successfully continue without them.

Seeking a business valuation can help identify which levers you can pull to build on your company’s strengths, creating more value so the business is better positioned when it’s time to sell. Additionally, during this process many owners realize they can begin to scale back their involvement, segueing into a consultant role and expediting their freedom rather than enduring the stress of shouldering the entire company themselves.

The Key Role of a Financial Advisor in Building the Ideal Succession Plan

As a small business owner builds their ideal succession plan, they’ll need to lean on a holistic team of professionals. Often, the financial advisor is tapped to serve as the quarterback, with support from a robust group that might include an exit planning strategist, an attorney and a tax planner, to name a few.

It’s difficult for small business owners to understand the amount of support that’s needed until they’re in that position. For example, when I worked at Chipotle during college, I got a front-row view of the seemingly endless pieces that went into the process of getting a burrito to a customer. It was much more than just whipping up some food in the kitchen; we had distributors driving certain packaged goods cross-country while others were delivered fresh locally. Operating the restaurant required lots of coordination between systems, people and more. I gained an appreciation for the delicate dance that takes place among all these working parts, which is similar to what business owners discover when they embark on succession planning — one person can’t handle all the details to successfully get you to the finish line.

By creating a comprehensive succession plan, small businesses can ensure continuity, preserve their legacy and sustain their success even after they retire. Are you ready to take the next step to start putting a viable exit strategy in place? Contact us to start exploring your options today.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

Get in Touch

In just minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Stay Connected

Latest posts.

  • Phillip’s Why Story
  • Market Commentary: Fed, Earnings, Job Gains Support a Young Bull Market
  • Facts Vs Feelings Take 5 – Buy in May and Stay
  • Market Commentary: Is “Sell in May” Still Relevant?

Business professional using his tablet to check his financial numbers

401(k) Calculator

Determine how your retirement account compares to what you may need in retirement.

Related Content

The corporate transparency act: what you need to know.

By Mike Valenti, CPA, CFP®, Director,Tax Planning LLCs can provide legal protections and a level of anonymity, either or both of which can be beneficial for business owners, investors, and others with valid intentions. But those features also attract criminal activity, and layers of shell c …

Life Insurance for Business and Estate Planning

By Matt Lewis, CLTC, Vice President, Insurance Life insurance is designed to provide for your loved ones after your death, giving you peace of mind that their financial needs will be met without your income. But life insurance can benefit your financial planning in many other ways.

By Odaro Aisueni, CFP®, Wealth Planning Administrator As a small business owner, you’re likely so immersed in the routine functions of your business that you haven’t yet put much thought into the day you leave it behind. In fact, most small business owners have so much purpose t …

5 Common Business Exit Planning Mistakes (and How to Avoid Them)

By Elizabeth Schanou, JD, CExPTM , Senior Wealth Planner  Succession planning – or more accurately “business exit planning” – is a critical process that has weighty implications for small business owners. There are two key goals: You want to ensure a seamless transition that will pres …

Business Succession Planning Checklist

The business succession process isn’t a “rainy day” task. It’s a living process that you should start as soon as possible.  You’ve probably given it some thought and almost figured out how you want to transition your business, but an “almost” succession plan is no plan at all. Fill in the f …

Planning Your Exit Strategy

When should you start planning your exit strategy? If you’re a business owner, your exit path should already be on your mind, no matter how far away it might be.

Culture From the Top Down: Executive Compensation Plans Explained

By Craig Lemoine, Director of Consumer Investment Research At their most basic level, executive compensation plans are designed to attract, retain and motivate top talent and leadership. But truly successful plans are designed to be much more than providing a high salary to a key employee – …

Breaking Down the Basics of ISOs

Companies have several tools they can deploy in order to retain top talent, and one that is gaining traction is incentive stock options, or ISOs. Much like non-qualified stock options (NSOs), ISOs are a form of equity compensation in private or public companies.

How to Build a Succession Plan for Your Business

Watch this webinar hosted by Carson’s Managing Partner of Wealth Solutions, Jamie Hopkins, and Managing Director of Mergers and Acquisitions, Jason Carver, to learn more about how to build a succession plan for your business.

Life Insurance Strategies for Business Owners

Entrepreneur and political figure Andrew Yang drew an important analogy between parenting and owning a business: “If you knew what it entailed you might not get started. But you’re glad you did.” Like parenting, owning a business involves sleepless nights, cold meals and an unbelievable amo …

Great, you have saved this article to you My Learn Profile page.

Clicking a link will open a new window.

4 things you may not know about 529 plans

Important legal information about the email you will be sending. By using this service, you agree to input your real email address and only send it to people you know. It is a violation of law in some juristictions to falsely identify yourself in an email. All information you provide will be used solely for the purpose of sending the email on your behalf. The subject line of the email you send will be “Fidelity.com”.

Thanks for you sent email.

Business succession: after the owner dies

succession plan of the business

What is a business succession plan?

  • Limited liability corporation (LLC). They’re required to have an operating agreement, which specifies what happens in the event of death. 1
  • Sole proprietorship. The business is considered part of the estate, and the executor is typically responsible for dissolving the business. 2  

Keep your documents safe—for free

Store, access, and share digital copies of your family's most important documents with FidSafe ® .

More to explore

Notify fidelity of a death, how do estate taxes work.

  • Managing estate planning
  • Changing jobs

This information is general in nature and provided for educational purposes only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Cart

  • SUGGESTED TOPICS
  • The Magazine
  • Newsletters
  • Managing Yourself
  • Managing Teams
  • Work-life Balance
  • The Big Idea
  • Data & Visuals
  • Reading Lists
  • Case Selections
  • HBR Learning
  • Topic Feeds
  • Account Settings
  • Email Preferences

The High Cost of Poor Succession Planning

  • Claudio Fernández-Aráoz,
  • Gregory Nagel,
  • Carrie Green

succession plan of the business

Many large companies fail to pay enough attention to their leadership pipelines and succession practices. That leads to excessive turnover at the top and destroys a significant amount of value—close to $1 trillion a year among the S&P 1500 alone, say the authors of this article. The biggest costs are underperformance at companies that hire ill-suited external CEOs, the loss of intellectual capital in the C-suites of organizations that executives leave behind, and for companies promoting from within, the lower performance of ill-prepared successors.

Companies and their boards can (and must) do better. The solution isn’t that complicated: Firms need to start succession planning well before they think they need to; make sure they identify and develop rising stars; appoint the most-promising executives to the board to help prepare them to take on the top job; and look at both internal and external candidates. In addition, when working with search consultants, firms should avoid perverse incentives like contingency and percentage fees.

A better way to find your next CEO

Idea in Brief

The problem.

Many large companies fail to pay adequate attention to their top-level leadership pipelines and succession processes, which results in excessive turnover and significant value destruction for companies and investment portfolios.

The Research

Analysis suggests that the market value wiped out by badly managed CEO and C-suite transitions in the S&P 1500 alone is close to $1 trillion a year. Better succession planning could, by contrast, help the large-cap U.S. equity market add a full point to the 4% to 5% annual gains Wall Street projects for it.

Companies—and especially their directors—must plan leadership changes before they’re needed, identify and develop rising stars, give them access to the board, look at both internal and external candidates, and partner cautiously with executive search firms.

In August 2013, Steve Ballmer abruptly announced that he would step down as chief executive of Microsoft as soon as his replacement could be found. Thus began one of the most important CEO searches in the past decade—and a case study in the dos and don’ts of senior leadership succession.

  • Claudio Fernández-Aráoz  is an advisor on Talent and Family Businesses, a frequent lecturer at Harvard Business School, and the author of  It’s Not the How or the What but the Who .
  • Gregory Nagel is a professor of finance at Middle Tennessee State University.
  • CG Carrie Green is the director of equities for the Tennessee Consolidated Retirement System.

succession plan of the business

Partner Center

succession plan of the business

Berkshire Hathaway event gives good view of Warren Buffett's successor but also raises new questions

T his year's Berkshire Hathaway meeting gave shareholders their best chance yet to hear from the man who will one day take over as CEO when Warren Buffett is gone, but Buffett said for the first time Saturday that Greg Abel should also take responsibility for the company's investments after he takes over, raising new questions about the succession plan.

Abel put his encyclopedic knowledge of the utility business that he led directly for years on display and delved into railroad operations and potential acquisitions that Berkshire pursued while sharing the stage with Buffett all day . For his part, the 93-year-old billionaire showed investors he is still sharp.

Abel pointed out that it required a major culture shift to get workers at PacifiCorp and the other utilities, who have long focused all their energy on keeping the lights on, to think about shutting the power down at times when the risk that their power lines could spark wildfires is too great. He also said BNSF railroad is working on getting “our cost structure right” after delivering disappointing results.

Succession was clearly top of mind for many of the thousands of people who filled an Omaha arena to listen to the two men after last fall's death of Vice Chairman Charlie Munger. Buffett, Abel and Ajit Jain, Berkshire's other top executive who oversees the company's insurers, reassured investors that Berkshire's board spends plenty of time focused on “what would happen to the operation if I get hit by a truck,” as Jain put it. Finding the right replacement for any of the three of them will be important.

Previously, Buffett had said that when Abel becomes CEO, investment managers Ted Weschler and Todd Combs, who's also taken on the responsibility of being Geico's CEO, would handle Berkshire's massive portfolio. But Buffett said Saturday that his thinking has evolved, and that “I would probably, knowing Greg, I would leave the capital allocation to Greg."

And Buffett said because Abel understands businesses so well, he also understands stocks.

But Edward Jones analyst James Shanahan said a good business doesn't always make a good stock unless you get the timing and position size right, and there is an art to that.

"I think stock picking is hard. I don’t think it’s something you can just start doing and be good at it," Shanahan said.

Abel does have a history of making multibillion-dollar deals when he was the head of Berkshire's utility unit for a decade, including the acquisitions of NV Energy and AltaLink , but he's never been a stock picker. Weschler and Combs might be able to help Abel get the timing right and find opportunities in the stock market, but Buffett didn't say that Saturday.

Abel just reassured shareholders that "the capital allocation principles that we use today will be maintained.”

“Does that give you more or less confidence post-Buffett? I would say it’s got to give you less — not because it’s a worse circumstance — but because it hasn’t been very transparent and communicated that clearly. You’ve got to start asking, well, what else is going to change?” said Cole Smead with Smead Capital Management.

Abel definitely has the confidence of the CEOs at all of Berkshire's many varied noninsurance businesses who report to him and ask his advice on any challenges they are facing.

“Greg sees so much more than I do on a daily basis. So his perspective is valued, and his wisdom is something that is such a luxury for all of us to be able to tap into,” said Dan Sheridan, who just became CEO of Brooks Running this year after his predecessor retired. He said Abel is always humble and curious about the business, even while asking challenging questions.

See's Candies CEO Pat Egan added that Abel reflects all of Berkshire's core values, with the company's emphasis on integrity, taking care of customers and strengthening brands, while still giving Berkshire's subsidiaries the freedom to operate independently.

“He really expects us to know our business, understand the parameters, and to run our business on a day to day basis,” said Tim Baucom, CEO of flooring giant Shaw Industries. “So I feel like I have all the freedom of the world, but with freedom comes responsibility.”

The shareholders who attended the meeting and spent hours shopping and talking with executives at the booths Berkshire subsidiaries set up when they weren't listening to Buffett and Abel remain confident. Some of them even got the chance to take selfies with Abel, though Buffett no longer tours the exhibit hall in public.

“I think they'll be fine,” said Michael Grizzard, who made the trip to Omaha from Richmond, Virginia, for the second time. “They're in good hands, and I think they have a good culture.”

Smead said even Buffett, who is easily one of the greatest investors the world has ever seen, has been having a hard time lately finding good investments big enough to make a difference at Berkshire except for the $135 billion Apple stake that remains its largest investment even after some trimming this year.

So no matter how good an investor Abel is, he will have a hard time finding deals big enough to provide a meaningful boost to Berkshire's earnings that approached $13 billion in a down first quarter. That challenge is a big part of why Buffett has warned investors not to expect any of the "eye-popping performance" of Berkshire's past.

But for now, Buffett showed that Abel may not need to take over anytime soon because he looked good and he has long said he has no plans to retire, even if he acknowledged Saturday that he doesn't have the same energy he used to. CFRA Research analyst Cathy Seifert came away impressed with his stamina.

“There wasn’t anything in that performance that I found worrisome or troubling,” Seifert said.

For more AP coverage of Warren Buffett look here: https://apnews.com/hub/warren-buffett . For Berkshire Hathaway news, see here: https://apnews.com/hub/berkshire-hathaway-inc . Follow Josh Funk online at https://apnews.com/author/josh-funk, https://www.twitter.com/funkwrite and https://www.linkedin.com/in/funkwrite .

Berkshire Hathaway Vice Chairman Greg Abel poses for pictures with shareholders while touring the booths Berkshires companies set up, Friday, May 3, 2024, in Omaha, Neb. Abel will succeed Warren Buffett as CEO one day. (AP Photo/Josh Funk)

Warren Buffett's successor Greg Abel seen preserving Berkshire's culture

  • Medium Text

Berkshire Hathaway Inc annual shareholders' meeting in Omaha

A DETAILS MAN

Transition in process.

Sign up here.

Reporting by Koh Gui Qing in Omaha; additional reporting by Jonathan Stempel; editing by Megan Davies and Diane Craft

Our Standards: The Thomson Reuters Trust Principles. New Tab , opens new tab

Illustration shows Airbnb app

Business Chevron

File photo of a thriving marijuana plant is seen at a grow operation in Denver

Trulieve Cannabis' quarterly loss narrows on demand boost

Pot firm Trulieve Cannabis posted a narrower first-quarter loss on Thursday, driven by higher sales and robust demand.

Illustration shows U.S. Dollar banknotes

More From Forbes

Foundation succession planning: a simple blueprint for smooth transitions.

  • Share to Facebook
  • Share to Twitter
  • Share to Linkedin

Philanthropic Succession Planning

In philanthropy, just as in business, the strategic foresight to plan for leadership succession is not just wise; it's imperative . Ensuring that a foundation or philanthropic organization can continue to function effectively and pursue its mission amidst leadership changes requires a proactive approach to foundation succession planning. By embedding thoughtful planning into the fabric of your organization, you can safeguard your foundation’s future, honor its legacy, and enhance its impact.

While the idea of philanthropic succession planning may seem daunting, it can be much simpler than you might expect. Many philanthropic leaders hesitate, fearing a complex and time-consuming process. But with a clear and straightforward approach, creating an effective succession plan is well within reach. You might be wondering, “What should a succession plan include?” and “What are the critical steps to succession planning?” Below is a six-step Simplified Succession Plan that demystifies the process and guides you through setting up a succession strategy that is practical, effective, and SIMPLE.

SIMPLE Steps to Succession Planning

S: Start with a Vision

Imagine your philanthropic organization a few years from now, having navigated a leadership transition so smoothly that it has become a case study in effective foundation succession planning. The new executive director has hit the ground running, or perhaps the next generation has smoothly assumed their roles. Long-serving board members have retired gracefully, their positions now filled by dynamic and capable successors. The foundation is more effective, vibrant, and aligned with its mission than ever before. This success story begins today, with a clear vision of what the transition should look like. Bringing your team together to visualize success is more than a daydream—it’s a strategic tool. Craft this vision with clarity and let it guide you as you create your philanthropy succession plan.

I: Identify the Essentials

Understanding where you are now and what needs to change to achieve your vision is crucial. Evaluate your current leadership structures, staff roles, and operational systems. Are there gaps that need to be filled? Do certain processes or roles need to be redefined or enhanced? You will want to consider all aspects of your foundation, such as grants management, investments, governance, and organizational culture. This step is about pinpointing what must be true for your envisioned future to become a reality. It involves assessing your philanthropic organization’s readiness for transition and identifying both organizational strengths to build on and weaknesses to address. This might include developing leadership within or preparing to attract external talent to key positions.

M: Map Out Critical Success Factors

With a clear understanding of what needs to be true, focus next on the critical success factors that will make the transition successful. These are the elements or changes that will have the most significant impact on your foundation’s ability to manage a smooth leadership transition. It could be refreshing your strategic plan, establishing term limits for board members, or even terminating a toxic employee. Select a few key areas and dedicate focused efforts towards these. When I facilitate succession planning, I often ask my philanthropic clients, “What is the 20 percent of effort that will drive 80 percent of your results?” Prioritizing effectively will help concentrate your resources on high-impact strategies that facilitate a seamless transition.

New FBI Warning As Hackers Strike Email Senders Must Do This 1 Thing

Baby reindeer real martha reveals identity in photo with piers morgan, 2 obvious signs of workplace gaslighting from a psychologist, p: prepare and document your plan.

Convert your strategic insights into a documented foundation succession plan that outlines each step of the succession process. This document should serve as a blueprint for the transition, detailing actions, responsible parties, timelines, and expected outcomes. It should address the creation, improvement, maintenance, or elimination of policies and practices that will support the transition. By clearly articulating this plan, you provide your team with the direction and details necessary to execute the transition smoothly and effectively.

L: Leverage Organizational Strengths

In times of change, it’s vital to leverage your organization's strengths. Whether it’s your foundation’s reputation, its operational efficiency, or its deep community connections, these assets are invaluable during transitions. Identify and emphasize these strengths in your planning to ensure they are preserved and utilized throughout the succession process. For example, if your foundation is known for its innovative grantmaking and commitment to racial equity, document this in your foundation succession plan and ensure that this remains a focal point during the transition.

E: Execute and Iterate

Finally, the best-laid plans must be put into action to be effective. Begin implementing your foundation’s succession plan immediately. Even if a transition is not expected for many years, succession plan implementation will strengthen your foundation. Early action also tests the plan’s viability and allows time for adjustments and refinements. Ensure that roles and responsibilities are clearly defined and that there are mechanisms in place to monitor progress and make necessary adjustments. Regularly revisiting and revising the plan based on real-world experiences and feedback ensures that it remains relevant and effective.

For leaders and trustees , prioritizing philanthropic succession planning is crucial. It ensures that your foundation remains robust and ready to face the future, regardless of changes in leadership. Spend time now learning about effective approaches to philanthropic succession planning . By anticipating changes and planning for them proactively, you safeguard the mission you are passionate about and ensure that your foundation continues to make a meaningful impact. Remember, the time to plan for tomorrow’s success is today—your legacy and your foundation’s future depend on it.

Kris Putnam-Walkerly

  • Editorial Standards
  • Reprints & Permissions

Join The Conversation

One Community. Many Voices. Create a free account to share your thoughts. 

Forbes Community Guidelines

Our community is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space.

In order to do so, please follow the posting rules in our site's  Terms of Service.   We've summarized some of those key rules below. Simply put, keep it civil.

Your post will be rejected if we notice that it seems to contain:

  • False or intentionally out-of-context or misleading information
  • Insults, profanity, incoherent, obscene or inflammatory language or threats of any kind
  • Attacks on the identity of other commenters or the article's author
  • Content that otherwise violates our site's  terms.

User accounts will be blocked if we notice or believe that users are engaged in:

  • Continuous attempts to re-post comments that have been previously moderated/rejected
  • Racist, sexist, homophobic or other discriminatory comments
  • Attempts or tactics that put the site security at risk
  • Actions that otherwise violate our site's  terms.

So, how can you be a power user?

  • Stay on topic and share your insights
  • Feel free to be clear and thoughtful to get your point across
  • ‘Like’ or ‘Dislike’ to show your point of view.
  • Protect your community.
  • Use the report tool to alert us when someone breaks the rules.

Thanks for reading our community guidelines. Please read the full list of posting rules found in our site's  Terms of Service.

Logo

Well-defined succession planning key to avoid disputes in business families: Vishwas Panijar

Vishwas Panijar, partner in business consulting firm Nangia Andersen LLP

Vishwas Panijar, partner in business consulting firm Nangia Andersen LLP, who leads the firm’s family office business, in an interaction with Dipak Mondal of The New Indian Express on the importance of amicable split of Godrej family business.

How significant is the Godrej family split in the context of Indian business history?

Considering the magnitude of the family operations that have been developed over the past century and its influence on Indian business landscape, the split may cause short-term instability in the market.

We have seen that in most cases, the fate of the transition is determined by how well the business, board, and family were prepared.

What factors contributed to the split in the group business?

I would not want to speculate the factors behind the split, however going by the official statements as well as the Family Settlement Agreement, it appears to me that the fundamental reason for the split seems to be that the newer generation have diverse interest and perception of Growth for the Group.

How important it is to resolve family disputes through amicable means, especially in the context of preserving both the family’s legacy and the stability of the business?

We have seen numerous instances of nasty family disputes coming into the limelight. In fact, we have been roped in some of these high-profile family disputes ourselves. Such disputes not only tarnish goodwill of the family but also seriously hamper stakeholder’s confidence. A well-defined conflict resolution mechanism within the family can address this systematically to ensure that all family disputes are resolved amicably with minimum disruption to existing business.

What insights can you share regarding effective succession planning strategies?

In my experience, clear and transparent communication amongst family members regarding the vision for the business is the key contributor to developing an effective strategy for succession planning.

While the family leaders play a significant role in setting the tone during the planning phase, it should be kept in mind that succession planning is not an exact science, but an art and hence should first begin with a simple question: Family first or business first?

How does the Godrej Family split serve as a case study for future generations of Indian entrepreneurs?

It is not the split per-se that is important but the manner in which Godrej Family was able to execute the split is a case-study on the ‘business first’ outlook and how to accommodate aspirations of the newer generation of family leaders in an amicable way without causing disruptions.

What lessons can other family-owned businesses learn from the Godrej Family split?

Succession planning is a way for business leaders to have an element of control over the way in which their business passes to the next generation.

Family leaders should proactively create a robust family charter that is foundationally rooted in the core values of the family but also flexible enough to survive multiple generations. Without formalised plans, it is easy for family members to disagree about how to manage the business when the leader steps away. By transparently articulating the rationale behind such decisions and ensuring equitable distribution, family leaders can promote harmony within the family.

Follow The New Indian Express channel on WhatsApp  

Download the TNIE app to stay with us and follow the latest

Related Stories

  • Election 2024
  • Entertainment
  • Newsletters
  • Photography
  • Personal Finance
  • AP Investigations
  • AP Buyline Personal Finance
  • AP Buyline Shopping
  • Press Releases
  • Israel-Hamas War
  • Russia-Ukraine War
  • Global elections
  • Asia Pacific
  • Latin America
  • Middle East
  • Election Results
  • Delegate Tracker
  • AP & Elections
  • Auto Racing
  • 2024 Paris Olympic Games
  • Movie reviews
  • Book reviews
  • Personal finance
  • Financial Markets
  • Business Highlights
  • Financial wellness
  • Artificial Intelligence
  • Social Media

Berkshire Hathaway event gives good view of Warren Buffett’s successor but also raises new questions

Berkshire Hathaway Vice Chairman Greg Abel poses for pictures with shareholders while touring the booths Berkshires companies set up, Friday, May 3, 2024, in Omaha, Neb. Abel will succeed Warren Buffett as CEO one day. (AP Photo/Josh Funk)

Berkshire Hathaway Vice Chairman Greg Abel poses for pictures with shareholders while touring the booths Berkshires companies set up, Friday, May 3, 2024, in Omaha, Neb. Abel will succeed Warren Buffett as CEO one day. (AP Photo/Josh Funk)

Berkshire Hathaway Vice Chairman Greg Abel checks out the flight simulators offered by one of Berkshires companies, Flight Safety as he toured the exhibit hall Friday, May 3, 2024, in Omaha, Neb. ahead of Saturday’s meeting. Abel is set to succeed Warren Buffett as CEO one day. (AP Photo/Josh Funk)

Berkshire Hathaway shareholders line up to take selfies with Greg Abel Friday, May 3, 2024, in Omaha, Neb. Abel will one day replace Warren Buffett as CEO. (AP Photo/Josh Funk)

Berkshire Hathaway Vice Chairman Greg Abel poses with shareholders Friday, May 3, 2024, in Omaha, Neb. Abel is set to be the next CEO after Warren Buffett is gone. (AP Photo/Josh Funk)

FILE - Berkshire Hathaway Chairman and CEO Warren Buffett speaks during an interview with Liz Claman on Fox Business Network’s “Countdown to the Closing Bell,” May 7, 2018, in Omaha, Neb. Everyone knows Buffett’s successor won’t be able to match the legendary investor, but Berkshire Hathaway’s board remains confident that Greg Abel is the right guy to one day lead the conglomerate into the future. (AP Photo/Nati Harnik, File)

Shareholder Tina Schmidt of Cozad, Neb., wears a shirt with Warren Buffett’s portrait in the style of an Andy Warhol painting at he Berkshire Hathaway annual meeting on Saturday, May 4, 2024, in Omaha, Neb. (AP Photo/Rebecca S. Gratz)

A person takes a photo of the Warren Buffett and Charlie Munger Squishmallows before Saturday’s Berkshire Hathaway shareholders meeting in Omaha, Neb., on Friday, May 3, 2024. are again one of the hottest item for sale this year at the Berkshire Hathaway shareholders meeting. (AP Photo/Josh Funk)

Berkshire Hathaway investment manager Ted Weschler, center, talks with Brooks Running CEO Dan Sheridan, Friday, May 3, 2024, in Omaha, Neb., one day ahead of the annual shareholders meeting. (AP Photo/Josh Funk)

  • Copy Link copied

succession plan of the business

This year’s Berkshire Hathaway meeting gave shareholders their best chance yet to hear from the man who will one day take over as CEO when Warren Buffett is gone, but Buffett said for the first time Saturday that Greg Abel should also take responsibility for the company’s investments after he takes over, raising new questions about the succession plan.

Abel put his encyclopedic knowledge of the utility business that he led directly for years on display and delved into railroad operations and potential acquisitions that Berkshire pursued while sharing the stage with Buffett all day . For his part, the 93-year-old billionaire showed investors he is still sharp.

Abel pointed out that it required a major culture shift to get workers at PacifiCorp and the other utilities, who have long focused all their energy on keeping the lights on, to think about shutting the power down at times when the risk that their power lines could spark wildfires is too great. He also said BNSF railroad is working on getting “our cost structure right” after delivering disappointing results.

Succession was clearly top of mind for many of the thousands of people who filled an Omaha arena to listen to the two men after last fall’s death of Vice Chairman Charlie Munger. Buffett, Abel and Ajit Jain, Berkshire’s other top executive who oversees the company’s insurers, reassured investors that Berkshire’s board spends plenty of time focused on “what would happen to the operation if I get hit by a truck,” as Jain put it. Finding the right replacement for any of the three of them will be important.

A person walks in the rain near an electronic stock board showing Japan's Nikkei 225 index at a securities firm Tuesday, May 7, 2024, in Tokyo. (AP Photo/Eugene Hoshiko)

Previously, Buffett had said that when Abel becomes CEO, investment managers Ted Weschler and Todd Combs, who’s also taken on the responsibility of being Geico’s CEO, would handle Berkshire’s massive portfolio. But Buffett said Saturday that his thinking has evolved, and that “I would probably, knowing Greg, I would leave the capital allocation to Greg.”

And Buffett said because Abel understands businesses so well, he also understands stocks.

But Edward Jones analyst James Shanahan said a good business doesn’t always make a good stock unless you get the timing and position size right, and there is an art to that.

“I think stock picking is hard. I don’t think it’s something you can just start doing and be good at it,” Shanahan said.

Abel does have a history of making multibillion-dollar deals when he was the head of Berkshire’s utility unit for a decade, including the acquisitions of NV Energy and AltaLink , but he’s never been a stock picker. Weschler and Combs might be able to help Abel get the timing right and find opportunities in the stock market, but Buffett didn’t say that Saturday.

Abel just reassured shareholders that “the capital allocation principles that we use today will be maintained.”

“Does that give you more or less confidence post-Buffett? I would say it’s got to give you less — not because it’s a worse circumstance — but because it hasn’t been very transparent and communicated that clearly. You’ve got to start asking, well, what else is going to change?” said Cole Smead with Smead Capital Management.

Abel definitely has the confidence of the CEOs at all of Berkshire’s many varied noninsurance businesses who report to him and ask his advice on any challenges they are facing.

“Greg sees so much more than I do on a daily basis. So his perspective is valued, and his wisdom is something that is such a luxury for all of us to be able to tap into,” said Dan Sheridan, who just became CEO of Brooks Running this year after his predecessor retired. He said Abel is always humble and curious about the business, even while asking challenging questions.

See’s Candies CEO Pat Egan added that Abel reflects all of Berkshire’s core values, with the company’s emphasis on integrity, taking care of customers and strengthening brands, while still giving Berkshire’s subsidiaries the freedom to operate independently.

“He really expects us to know our business, understand the parameters, and to run our business on a day to day basis,” said Tim Baucom, CEO of flooring giant Shaw Industries. “So I feel like I have all the freedom of the world, but with freedom comes responsibility.”

The shareholders who attended the meeting and spent hours shopping and talking with executives at the booths Berkshire subsidiaries set up when they weren’t listening to Buffett and Abel remain confident. Some of them even got the chance to take selfies with Abel, though Buffett no longer tours the exhibit hall in public.

“I think they’ll be fine,” said Michael Grizzard, who made the trip to Omaha from Richmond, Virginia, for the second time. “They’re in good hands, and I think they have a good culture.”

Smead said even Buffett, who is easily one of the greatest investors the world has ever seen, has been having a hard time lately finding good investments big enough to make a difference at Berkshire except for the $135 billion Apple stake that remains its largest investment even after some trimming this year.

So no matter how good an investor Abel is, he will have a hard time finding deals big enough to provide a meaningful boost to Berkshire’s earnings that approached $13 billion in a down first quarter. That challenge is a big part of why Buffett has warned investors not to expect any of the “eye-popping performance” of Berkshire’s past.

But for now, Buffett showed that Abel may not need to take over anytime soon because he looked good and he has long said he has no plans to retire, even if he acknowledged Saturday that he doesn’t have the same energy he used to. CFRA Research analyst Cathy Seifert came away impressed with his stamina.

“There wasn’t anything in that performance that I found worrisome or troubling,” Seifert said.

For more AP coverage of Warren Buffett look here: https://apnews.com/hub/warren-buffett . For Berkshire Hathaway news, see here: https://apnews.com/hub/berkshire-hathaway-inc . Follow Josh Funk online at https://apnews.com/author/josh-funk, https://www.twitter.com/funkwrite and https://www.linkedin.com/in/funkwrite .

JOSH FUNK

IMAGES

  1. Succession Planning

    succession plan of the business

  2. What is Succession Planning? Process and Steps to Take

    succession plan of the business

  3. Insights: Six steps to building a solid business succession plan

    succession plan of the business

  4. Succession Management: 9 Steps For Future Success

    succession plan of the business

  5. Succession Planning: Essential Guide for HR

    succession plan of the business

  6. Succession Planning: Its Importance & Process [with 10+ Examples]

    succession plan of the business

COMMENTS

  1. Succession Planning Template & 5 Steps to Write a Succession Plan

    The five common steps to preparing a business succession plan template are: 1. Timeline of Succession. There are two key types of succession plans: an exit succession plan and a death-or-accident succession plan. You may wish to write a death-or-accident succession plan well in advance of when you think you'll need it to protect your business ...

  2. A Beginner's Guide to Business Succession Planning for Small- and ...

    Overcoming road bumps with business succession planning. While succession planning may sound straightforward enough as you line up your wants and wishes for your organization, some common challenges can get in your way. Vague goals and requirements. You must be clear about each role's requirements and the steps needed to develop your employees.

  3. Succession Planning: Template, Process, Best Practices [2023]

    Business succession planning is the process whereby you identify candidates to be groomed for senior positions. Specifically, when the incumbent leaves the role, this could be for a promotion, retirement, or an untimely death. Your business succession plan is in place to facilitate a transfer of power and keep your business sailing smoothly.

  4. How to Create a Business Succession Plan

    3 Reasons to Have a Business Succession Plan. Creating and implementing a sound succession plan will provide several benefits to owners and partners: It ensures an agreeable price for a partner's ...

  5. Succession Planning Basics: How It Works, Why It's Important

    Succession Planning: A strategy for passing each key leadership role within a company to someone else in such a way that the company continues to operate after the incumbent leader is no longer in ...

  6. Succession Planning: What the Research Says

    A version of this article appeared in the December 2016 issue (pp.70-74) of Harvard Business Review. Read more on Succession planning or related topics Leadership transitions and Boards

  7. Business Succession Planning: A Step-by-Step Guide

    Business Succession Planning Best Practices. Here are a few business succession planning best practices to help you create a plan that sets you up for success: Formalize your plan. The sooner you create and formalize a detailed succession management plan, the better. Make sure your succession planning process focuses on all key stages.

  8. Your Business Needs a Succession Plan: Here Are the Basics

    Every business succession plan looks different. Not every business owner wants to transition their business in the same way or at the same time. Some owners want to exit completely at a certain date.

  9. A Step-by-Step Guide to Creating a Business Succession Plan

    Hiring the first one you find is a risky strategy. If you have a business succession plan in place, then you have more of an idea of when you'll need to recruit someone new and can prepare ...

  10. Tips For Creating A Solid Business Succession Plan

    Whatever your business's circumstances, a valuation can be a critical element of a succession plan, whether planning an eventual sale to a family member or employee or attracting an external buyer.

  11. A Comprehensive Guide To The Leadership Succession Planning ...

    Essential Steps In The Leadership Succession Planning Process. 1. Look at critical vs. vulnerable positions. When figuring out which leadership positions to plan for first, you want to look at two ...

  12. PDF Succession Planning: A Step-by-Step Guide

    Succession planning helps ensure business continuity and performance, particularly during times of shifting leadership and change. Even when there is no identifiable successor within an organization, succession planning can help identify the knowledge, skills and training needed in a future external candidate.

  13. Plan a Smooth Succession for Your Family Business

    Plan a Smooth Succession for Your Family Business. Summary. A central concern of family business leaders is assessing the readiness of the next generation to take over the business. This is ...

  14. The Key to Successful Succession Planning for Family Businesses

    The succession process is one of the biggest challenges facing family firms, as most fail to remain a family business past the second generation. Among those that do succeed, a key concern is how ...

  15. The Complete Succession Planning Guide for HR Professionals

    Your succession plan is key for long-term business success. Here are 8 top reasons why succession planning is critical to your business: 1. Provides a guideline for training and development. The right succession plan will guide your training and development plans and prepare high-potential employees for their future role. Your succession plan ...

  16. Succession Planning for Small Business

    A succession plan aims to benefit everybody: the former owner, the business, the employees, and the successor. This step by step guide will help you create a succession plan to give you peace of mind. Step One: Decide How to Exit Your Business. The first step in succession planning is deciding how you want to leave your business.

  17. Planning for the Succession of Your Business: Step by Step

    The succession process moves through different stages and action steps and must be designed to meet your needs as owner and those of your business. Decisions must reflect that both your personal needs and the health of the business are complementary to desired outcomes. 5. Speak with your significant other, partner or spouse.

  18. How Leaders Can Begin Business Succession And Exit Planning

    Succession and exit planning is a comprehensive process that focuses on the ultimate goal of a business. ... effort and energy into beginning with the end in mind and building a business ...

  19. Building Your Ideal Business Succession Plan

    A succession plan should have four key components, many of which are intertwined: Timing: While I mentioned that the time to start should be now, this aspect relates to when you want your transition complete while recognizing the timeline might shift. Ideally, you'll be considering a distant timeframe - such as a 10- to 20-year period ...

  20. 5 Components of a Successful Succession Plan

    One of the key elements of a succession plan is the transition of leadership responsibility to the next generation. This transition requires the identification of a family member willing and able to take on the leadership role in the family business. In some instances, a family may decide to hire a non-family executive to run the business while ...

  21. Strategies: 3 best practices for succession planning

    Succession planning is a necessary component to business operations, and laying the foundation for the process ahead of time can reduce the risk of new leadership failing.

  22. Business succession: What to do after the owner dies

    In general, a succession plan is a formal document that lays out exactly how the ownership and key leadership of a company should transfer after the current owner steps down, retires, or dies. Some succession plans will simply name successors, new owners who will carry the business forward smoothly as previously planned.

  23. The role of succession planning in promoting brand resilience and

    The purpose of a succession plan in an organization is to outline the proper steps to fulfill its mission, vision, and selection of qualified human capital to stay in business (Calareso, 2013). It is therefore necessary for brands to raise their levels of consciousness in this area, considering the importance of succession planning in promoting ...

  24. The High Cost of Poor Succession Planning

    The High Cost of Poor Succession Planning. Summary. Many large companies fail to pay enough attention to their leadership pipelines and succession practices. That leads to excessive turnover at ...

  25. Berkshire Hathaway event gives good view of Warren Buffett's ...

    Succession was clearly top of mind for many of the thousands of people who filled an Omaha arena to listen to the two men after last fall's death of Vice Chairman Charlie Munger. Buffett, Abel and ...

  26. Warren Buffett's successor Greg Abel seen preserving Berkshire's

    Even though Buffett has shown no signs of wanting to step aside, investor focus on Berkshire's future came to the fore again after Charlie Munger, Buffett's long-time friend and business partner ...

  27. Succession Planning: A Simple Blueprint For Smooth Transitions

    Philanthropic Succession Planning. Getty. In philanthropy, just as in business, the strategic foresight to plan for leadership succession is not just wise; it's imperative.Ensuring that a ...

  28. Well-defined succession planning key to avoid disputes in business

    Succession planning is a way for business leaders to have an element of control over the way in which their business passes to the next generation.

  29. Berkshire Hathaway event gives good view of Warren Buffett's successor

    Succession was clearly top of mind for many of the thousands of people who filled an Omaha arena to listen to the two men after last fall's death of Vice Chairman Charlie Munger. Buffett, Abel and Ajit Jain, Berkshire's other top executive who oversees the company's insurers, reassured investors that Berkshire's board spends plenty of ...