What is a succession plan – and why do you need one?

Succession planning as a business owner
  • Financial education
  • 4 minute read

Safeguarding the future of your company is one of your most important responsibilities as a business owner. As a business owner, the chances are you’re so caught up with the daily demands of running a company that you haven’t had the time and space to think about succession planning. If that’s the case, don’t worry – you’re not alone.

It is a good idea to draw up a succession plan since it will help you to ensure the long-term continuity of your business. It will also help to prevent unnecessary conflict arising at a later date. Succession planning is particularly important during times of uncertainty, as many business owners are prompted to re-evaluate their personal priorities and adapt their future plans.

So, what do you need to know about succession planning? In this article, we outline some key considerations and suggest some possible next steps to kick-start the process of drawing up your own succession plan.

What is a succession plan?

A succession plan is a formal plan that sets out your detailed intentions for your business over the long term. As well as being an instruction of your wishes for the company, it also sets out when those wishes should come into play. This removes ambiguity about what is expected to happen and when, giving everyone involved with the business some visibility around the future.

There are two main types of succession plan. An exit succession plan outlines how you intend to transfer ownership on a specific date – for example, retirement. An emergency succession plan outlines what would happen in the event that you were suddenly unavailable to work within the business, perhaps due to death or illness. You may want to draw up both types of plan to cover all eventualities – there is likely to be some overlap in terms of content.

What should a succession plan include?

  • Names of your successors. In your succession plan, you will clarify who will take over the business from you and why you have chosen them. You might have a range of possible successors including co-owners, family members, key employees or outside buyers. Depending on who your likely successors are, you might need to think about what training and development they will need in order to take over. In the event of an exit succession plan, you might also want to put a transition period in place.
  • A succession timeline. This will outline the period over which succession will take place, setting out specific dates for specific events.
  • An up-to-date valuation of the business. This is a critical element of an exit succession plan since it will help you, as the business owner, to make the appropriate financial plans for your exit. It will also give your successors visibility around the level of funding they might need to buy you out. The business should be revalued at regular intervals while the succession plan is in place, ideally by a professional valuation expert.
  • Operating information. Your succession plan can include key information relating to the business, as well as standard operating procedures. For example, you might include daily checklists, an employee handbook, an organisational structure, job descriptions and meeting minutes.
  • Shareholder protection. In the event that a business owner dies unexpectedly, shareholder protection insurance enables surviving shareholders who are not beneficiaries to acquire the business owner’s shares from the estate. The insurance is used in conjunction with a cross option agreement, which maintains business relief from the inheritance tax that would otherwise arise when shares of a business are included in an estate.

When should you draw up a succession plan?

There is a strong argument for having an emergency succession plan in place at all times. A business owner might typically look to draw up an exit succession plan around five years ahead of retirement. Since the circumstances of the business, the business owner and their successors are likely to change, it is important to review the succession plan regularly.

What next?

Succession planning can be a complicated and sensitive topic. There is a lot for business owners to consider when they are drawing up their plans for the future – financially, operationally and personally. Also, the nature of the succession plan is likely to vary depending on whether the owner’s designated successors are co-owners, family members, key employees or outside buyers.

For these reasons, many business owners request the support of their financial advisors when drawing up their succession plans. An advisor can help you to clarify your succession plan, considering both your financial circumstances and your long-term personal and professional objectives. They can also help you to achieve a smooth and tax-efficient transfer of your business to your designated successors.


Capital at risk.  Any tax benefits depend on individual circumstances and tax rules are subject to change.


Contact us to find out more about how Close Brothers Asset Management can support you with succession planning.

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