Even small business owners need to think about what happens to their business after they retire or the unexpected happens.

Maybe you’re a family-run business thinking about how you’ll transfer ownership to the younger members of the family one day. Or perhaps you already have a business partner and want to let them take control full time.

Whatever the future holds, it’s important to have a clear plan in place so you know your business is in good hands when the time comes. Read our strategic guide to get started.

What is succession planning?

Succession planning is when a business prepares to transfer ownership or management to someone else.

We know it can be hard to imagine someone else running your business after you’ve nurtured it and watched it grow, but creating a succession plan helps you look after its future.

Some of the benefits of succession planning include:

putting the right people in charge
looking forward to retirement
preparing for the unexpected
peace of mind that your business will continue

Succession planning tools like a SWOT analysis can be useful for understanding the challenges ahead for your business or industry – and the skills needed to tackle them.

Tips for succession planning

First you need to decide if you just want to step back from managing the company (while still keeping ownership of it), or if you want to sell the company at the same time. It might be an idea to have a plan in place for both instances.

Meanwhile, here are just a few other things you’ll need to think about when succession planning:

Clarify your vision

Look back over your business plan to see how you’re performing against your goals and ambitions. Your successor should be someone who shares your vision and you can trust to take your business forward.

Identify skills

What skills does your successor need to be able to run your business successfully? Can you find someone with similar experience? If you have employees, encouraging continuing professional development helps build a team with the right knowledge and skills too.

Write a will

It’s not a pleasant thought, but if you or your business partner die, having a will in place makes sure that the business assets and shares are managed in the right way. Get the help of a legal professional to make sure everything’s in order.

Appoint new directors

If you run a limited company, you’ll need to appoint new directors before you step down. You’ll also need to tell Companies House about any changes.

Get your accounts in order

Selling your business will affect how you pay tax. You can contact HMRC online to let them know, just login using your Government Gateway credentials.

If you’re VAT registered, you may be able to transfer this registration to the new owner. You may also need to sell any shares if you’re in a business partnership.

Selling or changing ownership of a company can be complicated. For more guidance, visit Gov.uk and always get professional advice if you’re not sure of anything.

Succession planning model

Establish a timeline

It’s a good idea to keep in mind how quickly you’re looking to find a successor. Your timeline will influence your priorities, from the cost you’re hoping to get from selling to the essential skills you’re looking for in a successor.

Value your business

Whether you’re selling your company or just stepping back from managing the day-to-day, it’s a good idea to value the business during negotiations. There’s lots to consider when valuing a business – our business valuation guide can help here.

Name your successor

Once you’ve identified who’s taking over, you’ll need to document this and start communicating to any employees, shareholders, and suppliers.

File key documents and policies

Of course there’s always going to be some business admin associated with handing over control of your business. From employee contracts to legal certificates and licences, make sure these are in the right hands.

Update your business insurance

If your business changes, it’s important to make sure you’ve still got the cover you need. For example, if the business insurance policy is in your name you’ll need to inform your insurer with key contact information when you step down.

Succession planning examples

Let’s say you’re a restaurant owner and you run the business in partnership with your brother.

You both have different skills. His friendly customer service keeps the diners happy, while you keep a close eye on profit and marketing strategy. You’re also the one who holds the personal alcohol licence for the premises.

When you unexpectedly need to step down from your responsibilities due to health reasons, this leaves a gap in the management structure.

With a succession plan in place, your brother will be clear on the skills and responsibilities he needs to manage without you. He’ll also need to apply to transfer the premises licence to himself or a new partner.

Free resources for small businesses

Our Knowledge centre has plenty of information to help you with running your business and preparing for the future, including:

Have you got a succession plan for your business? Let us know in the comments.

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Photograph: Jacob Lund/stock.adobe.com

Succession planning templates and tips for small businesses