A guide to small business succession planning

Running a small business takes vision, drive and countless hours of work. But what happens when you’re ready to step away — or life takes an unexpected turn? That’s where a small business succession plan comes in.

A succession plan helps you prepare for the future of your business, whether you plan to retire, sell or transfer the company to a family member or employee. It ensures your business continues to thrive — no matter who’s at the helm.

When you’re ready to get started, talk with a trusted professional like a wealth advisor, banker or accountant.

 

Why should a small business owner have a succession plan?

A succession plan can give your business stability, continuity and peace of mind. Here are a few key reasons to start planning now:

• Prepare for the unexpected. Health issues, emergencies or sudden opportunities can arise. A plan can help you to be ready.
• Protect your legacy. You’ve worked hard to build your business. A plan helps ensure it continues to reflect your vision.
• Avoid disruptions. Without a clear plan, ownership transitions can be stressful for employees, customers and partners.
• Increase business value. A well-documented succession plan may make your business more attractive to buyers or investors.
• Support long-term goals. Planning ahead can help fund retirement, create wealth for family members or transition leadership smoothly.

 

When to start a small business succession plan

The short answer? As soon as possible.

Creating a solid plan takes time — and ideally it’s done well before you intend to step away. Even if you’re not planning to sell or retire soon, it’s smart to start thinking about your options now.

Some small business owners start long before they intend to transition. That gives you time to train successors, prepare legal and financial documents and communicate clearly with your team.

 

Options for succession planning for small businesses

There’s no one-size-fits-all approach to succession planning. Your best option depends on your business structure, goals and long-term vision. Common options for small businesses include:

• Will or trust

  Ideal for family businesses or sole proprietors, this legal document specifies who will inherit your business.

• Operating agreement

  For LLCs and partnerships, this document can outline what will happen to ownership shares in the event of retirement, disability or death.

• Buy-sell agreement

  This is a binding contract between co-owners of a business that outlines how an owner’s share will be reassigned if they leave the business.

• Sale during life

  You may also choose to sell the business outright to a third party, a business partner or even one or more employees.

Each option has legal and financial implications, so it’s a good idea to work with professionals to find what’s right for your situation.

 

Common challenges in small business succession planning

Creating and executing a successful succession plan takes thought and care. Here are a few common hurdles — and how to navigate them:

• Procrastination. It’s easy to put off long-term planning. Set milestones and schedule regular check-ins to stay on track.
• Choosing the right successor. Not every family member or employee wants to — or is qualified to — take over your business. Be thoughtful and transparent in your decision.
• Financial complexities. Transferring ownership can involve taxes, valuations and financing. A financial advisor can help clarify your options.
• Emotional attachment. Letting go is hard. But having a plan can give you peace of mind that your business is in good hands.

 

How to create a small business succession plan

Ready to get started? Here’s a high-level look at some of the key steps in the planning process:

1. Define your goals.

   Are you transferring the business to family, selling it or just preparing for retirement?

2. Identify a successor.

   Choose someone with the right skills, experience and interest in running the business.

3. Document your plan.

   Work with legal and financial professionals to draft necessary documents (like a will, trust or buy-sell agreement).

4. Communicate the plan.

   Share your intentions with key stakeholders — including employees, family member and business partners.

5. Review and update regularly.

   Revisit your plan as circumstances or business needs change.

 

A few tips for small business succession planning

• Start early — even if you’re not ready to exit just yet.
• Be honest about your goals and expectations.
• Get input from advisors, accountants and lawyers.
• Train your successor well in advance.
• Keep your plan updated as your business evolves.
• Communicate openly with family and key employees.

 

The future is ahead of you — be ready to meet it

 

A well-thought-out small business succession plan can help you protect what you’ve built, take care of your team and exit on your own terms, whether that’s tomorrow or 10 years from now. Starting early and exploring your options can help you be better prepared for whatever the future holds. Learn more in the J.P. Morgan Wealth Management article “Introduction to Succession Planning for Business Owners”, the Chase for Business article “5 Things you Should Consider Before Heading for the Exit”, or the The Unshakeables podcast from Chase for Business — or find your nearest Chase branch.