06 October, 2021

Small Business Succession Planning

Small Business Succession Planning

If you own a small business, be sure that you have a solid succession plan as a component of your overall financial and estate planning strategy. 


Small businesses serve a wide range of needs in society, create employment opportunities and are crucial to a vibrant economy. Business owners devote considerable time, effort and money to operating and growing their businesses. Given all this hard work and commitment, it makes sense that business owners implement a succession plan to ensure their business remains viable and in capable hands.


What is succession planning?

When you devise a strategy to transfer your business ownership to another party, and transition out of a managerial role, that’s succession planning. Having such a plan enables your business to continue operating in a manner that’s as seamless as possible. The better your plan, the smoother the transition will be.


At some point – whether because of retirement, decreased interest, financial challenges, serious illness or death – the ownership of a small business will likely need to be transferred or sold. Many owners don’t give serious thought to a succession plan or work with the appropriate professionals (e.g., financial advisor, tax and estate specialist, legal advisor) to create one, but they should.


5 key benefits of a succession plan

  1. Business continuity is essential for ownership, management, employees, suppliers and customers alike. A good succession plan adds stability to the business and may help keep it on a path of positive growth.
  2. Many small business owners will rely on the sale of most or all of their business for future financial security. Having a succession plan may increase the value of their business, generating an important source of income for retirement and helping them achieve their desired retirement lifestyle.
  3. Unforeseen circumstances like the death, critical illness or disability of a business owner may put their business in disarray if no succession plan exists to protect them.
  4. If a business owner intends to transfer the business to family members or sell it to people on the current management team, implementing a succession plan allows the owner to adequately train them on running the business, which helps optimize the transition.
  5. Owners put so much commitment and capital toward operating their business. Knowing they have a strong succession plan offers considerable peace of mind and confidence for the future, allowing them to maintain/grow their wealth and accomplish their retirement goals.


Integrating succession and estate planning

If your objective is to have one or more family members take over your business, consider including your succession plan as part of your estate plan. It’s a great opportunity to test the waters and find out which family members are both interested in and capable of running your business. They can also tap into your expertise and discuss their vision of the future to encourage good alignment of business direction.


Also, if you’re transitioning your business to only one or some of your intended heirs, you can reflect that in your estate plan to make the overall distribution of assets fair and according to your wishes. As an additional incentive, building succession planning into your estate plan provides clarity to your family members and may help avoid disagreements or discord when your estate settles.


Another consideration when transitioning your small business among family members is to be tax efficient. Every business is unique and needs to be assessed based on its own circumstances, but one of your goals in succession planning should be tax minimization. Strategies to consider involve:


  • Making use of available tax exemptions upon sale of your business (e.g., the capital gains exemption for qualified small businesses)
  • Taking advantage of income-splitting opportunities, including setting up spousal and/or family trusts
  • Reducing probate fees for which your estate would be responsible


It’s important to create a business succession plan well before retirement, in case unexpected circumstances require a transfer of business ownership. I can help ensure that your succession plan works effectively with your broader financial plan and estate plan as part of a comprehensive strategy.



Contact our office to discuss how planning is an essential aspect of operating a small business and preparing it for next steps.