and How to Start One
Many small business owners spend years building their business — but few spend enough time planning how they will eventually exit it.
A succession plan isn’t just for large corporations or family-run dynasties. It’s an essential part of business risk management and future-proofing, especially for SMEs where the owner is often the driving force behind the operation.
In the absence of a clear plan, businesses can face serious disruption or even collapse when the unexpected happens — ill health, retirement, or a sudden decision to sell.
What is Succession Planning?
Succession planning is the process of identifying who will take over your business when you retire, step back, or can no longer run it. It might involve:
✅ Selling to a family member
✅ Passing it on to a management team
✅ Selling to a third party
✅ Merging with another business
✅ Closing down in an orderly way
Good succession planning ensures a smooth transition, protects staff and customers, and maximises the value of your business.
Why Does Succession Planning Matter for SMEs?
For many small business owners, their business is their biggest asset — and often their retirement fund.
Without a plan:
- Value can be lost if a forced sale is rushed
- Staff may leave due to uncertainty
- Customers may go elsewhere
- Families could face complex legal or financial issues
A 2023 report from the Institute for Family Business (IFB) found that 60% of small businesses had no formal succession plan in place — leaving them exposed.
When Should You Start Planning?
The simple answer is — as soon as possible.
Succession planning is not just about preparing for retirement. Accidents, illness, or unexpected offers to buy the business can happen at any time.
Having a plan gives you options and protects your business value. Here are the key steps to follow to create a succession plan:
- Define Your Exit Goals
Decide what you want from your eventual exit:
- Maximum financial return?
- Keeping the business in the family?
- Protecting staff jobs?
- Selling as a going concern?
Your goals will shape your strategy.
- Identify Potential Successors
Think about who could take over — family, employees, business partners, or an external buyer. Be realistic about their skills, experience, and desire to lead.
If no obvious successor exists, you may need to:
- Start developing internal talent
- Recruit externally
- Explore sale options
- Get a Business Valuation
Knowing your business’s market value is vital for planning a sale, retirement, or handover. A professional valuation gives you a benchmark and may highlight areas to improve.
- Develop a Handover Plan
Once you have a successor in mind:
- Train them gradually
- Involve them in key decisions
- Document systems, processes, and contacts
- Update legal structures if needed (shares, directorships, etc.)
- Review Tax Implications
Selling or transferring a business can trigger Capital Gains Tax or Inheritance Tax issues. Work with your accountant to minimise liabilities and explore reliefs like Business Asset Disposal Relief (BADR).
- Put it in Writing
Document your plan formally. Include:
✅ Timelines
✅ Successor details
✅ Financial goals
✅ Contingency plans for illness or death
Review your plan annually — as circumstances and markets change.
Succession planning might feel like a job for the future, but it’s a vital part of running a sustainable business.
Done right, it protects everything you’ve worked hard to build, looks after your employees, and gives you peace of mind about the future.