Succession planning for business owners and professionals

Succession planning is about more than just selling your business upon retirement. It’s about planning for longevity within the community, continued employment for your employees, and leaving behind a legacy.
retiring small business owner talking to employee and successor

Succession planning has historically been a luxury only for large corporations. However, baby boomers own nearly half the privately held businesses in the U.S., and more than half of these owners expect to retire in the next 10 years.

Small business owners are focused on building the business and taking care of their employees. That focus means that many owners have no exit plan in place despite having upwards of 80-90% of their assets in their businesses. With retirement imminent, it’s more important than ever for small business owners to prepare a succession plan that ensures their businesses can continue to serve their communities in perpetuity.

Teamshares helps small business owners transition successfully and confidently into retirement by making the company’s new owner the most local buyer there is—its employees. We do this by immediately granting 10% ownership of the business’s stock to employees once a transaction is complete.

Teamshares will help a network of 10,000 small businesses become employee-owned, creating $10 billion of stock wealth for hard-working Americans while supporting a generation of business owners through confident retirement.

What is succession planning?

There are many forms of succession planning, including emergency succession planning and long-term succession planning. Succession plans typically focus on one of two parts of the business: operations or employees.

Small business succession planning is the process of documenting standard business operations, compiling financial information, supporting employees during a leadership transition, building a timeline to exit the business, and much more. When performed successfully, this type of succession planning involves creating an exit strategy that considers not only existing employees but also the community the business serves.

Career succession planning is when a business owner proactively builds a strategy to fill critical roles and maintain day-to-day operations in the event of employee churn. Doing so helps to maximize growth and prevents disruptions in the business. Proactively planning for employee succession creates more efficient talent retention, higher employee morale, and accelerated organizational growth.

As a business owner, both types of succession planning are crucial to ensure continued success during an exit.

Why is succession planning important?

Succession statistics reveal that almost half of U.S. workers are employed by small businesses, making the success of small businesses integral to the vitality of our economy.

Unfortunately, only one-third of small businesses have a succession plan in place. Moreover, 70% of small businesses fail to sell at the time of owner retirement. Without a buyer or clear exit plan, even long-standing and successful small businesses are often forced to close their doors.

Teamshares is one of the largest buyers of small businesses in the United States. We have a 90% close rate on signed letters of intent, as well as committed capital with no financing contingencies. This means we can buy businesses quickly and independently, resulting in more successful business purchases.

"I can’t stress enough that the more prepared a business owner is for an exit the better. They should have a contingency plan in place in case an emergency arises, such as divorce, disease or death. The more prepared a business owner is, with a well-thought-out plan for their future, the better. Selling a business is a process. It can be stressful, but it doesn’t have to be horrible."

At Teamshares, we help owners retire knowing the business and its employees will remain in the community for generations to come, without ever having to be sold again.

Succession planning steps

A succession planning template can help business owners organize tasks for a successful transition and exit. There’s no one-size fits all approach to succession planning because every business has different needs, employees, management, and operations.

However, there are some baseline steps that prospective business sellers should follow:

  • Create an exit timeline: Begin preparing a succession plan three to five years prior to retirement. Vetting several brokers will allow you to get a sense of who to partner with when exiting your business.
  • Determine value: Engage a broker who specializes in small business sales to help analyze business operations, finances, market potential, and industry trends to determine the value of the business.
  • Organize financial statements: Hire a bookkeeper, controller, or CFO consultant to help clean up the balance sheet and generate a profit and loss statement. To add additional value, engage a CPA to conduct an audit of the business and communicate the accuracy of the company’s financials to prospective buyers. Consider working with a financial planner to understand your financial outlook in retirement and any tax implications of the sale.
  • Document operations and company processes: Document day-to-day operations, key employees and their responsibilities, a list of assets and facilities, employee handbooks, and training guides to ensure a seamless transition to new ownership.
  • Identify a successor: Successors may include a family member, business partner, existing employee, or third-party individual. At Teamshares, we hire a generalist leader to deliver the most value to well-established small businesses and bring an outsiders perspective.
  • Notify employees of the succession plan: As one of America’s largest buyers of small businesses, we recommend that owners wait until the sale is officially closed to announce it to employees. Notify key employees about the decision prior to the larger group announcement to ensure they feel appreciation for their hard work and are supportive of your succession strategy.

Are you a broker or business owner that needs an exit plan to keep your company and employees in place?

At Teamshares, we take on the crucial task of finding a successor so you can focus on other key components of succession planning.

What to expect when transitioning a business

Selling a business is complex both operationally and emotionally. Though every small business sale is unique, there are some general best practices when selling a business, including:

  1. Conducting research: Before making any decisions, research different exit strategies and decide what will best fit your business and next chapter of life.
  2. Considering employee ownership: Teamshares offers a unique solution for small business owners looking to transition their business to the most local buyer—its employees.
  3. Connecting with other former business owners: Speak to other former business owners who have gone through a similar transition process for valuable insights about midlife changes and what to expect.
  4. Asking questions: When working with professionals such as a broker, bookkeeper, attorney, or CPA during the transition, ask as many questions as possible to address all your concerns.
  5. Emotionally preparing: Selling a business, especially one that has been in your family for many years, can be very emotional. Be prepared for a range of feelings and reactions from family members and employees.

“It’s important to be honest about if you are actually ready to sell your business. If you don’t have a post-sale plan or if golfing, boating, traveling, or playing with your grandkids doesn’t make you smile, you may not be ready to let go.”

When succession planning, knowing what to expect is often the key to successfully transitioning out of the business.

Succession planning FAQs

While there’s a lot to know about succession planning, here are a few frequently asked questions:

What is the difference between HR planning and succession planning?

HR planning is focused on ensuring a company has the right types of roles and the correct headcount to achieve its business goals and objectives. Succession planning is focused on ensuring that the most qualified individuals are in key leadership roles so that the retiring owner can successfully transition out of the business.

How do you write a simple succession plan?

A simple succession plan includes a timeline, putting financial affairs in order, determining company value, documenting processes, identifying a successor, and making an announcement.

What is an example of a successful succession plan?

When the owner of a 20+ year old automotive repair business passed away suddenly, his son, Peyton Leveillee, stepped in to lead the company as an emergency interim solution. Shortly after, he began strategizing a succession plan to sell the business that would keep the long-standing employees and integrity of the operation in place.

Peyton worked with his lawyer to gather documentation for the company, and ultimately, chose Teamshares as his succession partner. In doing so, Peyton selected the most local owner there is for a small business—its employees.

What is the most critical step in succession planning?

The most critical step in succession planning is understanding the value of a business.

A business broker can help owners analyze a company’s operations, finances, potential in the market, and industry trends to develop a more accurate picture. This information informs the specific steps a business should take to prepare for a sale, and will allow owners to identify an ideal position in the market.

What is the first step in succession planning?

Defining a timeline to exit the business is the first step in succession planning. This timeline should be between three to five years, but can also happen in as little as eight months depending on the circumstances.

What is a CEO succession plan?

Because CEO succession planning involves identifying a new leader, it is often the most challenging part of transitioning out of a business. Finding, hiring, and training a new leader requires a lot of time and effort at a moment when a retiring owner is juggling a lot of other responsibilities.

Teamshares takes the guesswork out of identifying a new leader for business owners by placing a people-oriented president to take over the business. We carefully vet each leader to ensure they have a growth mindset, empathetic leadership skills, and strong financial acumen. Teamshares also continues to support new leaders as they transition into the role and beyond by partnering with them on various initiatives such as onboarding, pricing reviews, and more.

Currently, there’s a succession planning problem for U.S. small businesses. To ensure your business, its employees, and your legacy live on after retirement, every small business owner should prioritize succession planning.

If you’re a broker or small business owner that needs an exit plan to keep your company and employees in place, submit your business to Teamshares.

Teamshares writers follow strict principles for sourcing credible information within articles. Any outside information including direct quotes, paraphrased information, and concepts that are derived from external sources adhere to our standards for accuracy and transparency.

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