As the old saying goes, failing to plan is planning to fail. All small business owners devote their time and talent to building their business, but most don’t consider what will happen to the business if they are not around to manage their business, whether because of incapacity or death. Every small business owner needs to have a plan in place to protect his or her legacy.

The main benefit of succession is peace of mind knowing that your the business will survive the absence of the owner and key managers. Every business should have two succession plans, a crisis ownership and management succession plan and an orderly ownership and management plan. The crisis plan will put the appropriate players in place to take care of the business owners’ duties and responsibilities if he or she is unavailable because of injury, illness, or death. This plan should be adopted as soon after the business is established as possible. The orderly plan is a long-term strategy that gives the business owner a chance to set up the business for a successful transition, and select and vet candidates who will own and manage the business when the owner retires or dies.

Most business owners think of succession planning as a strategy to pass on the business to family members or key employees. Replacement planning usually refers to setting up the business for sale at the maximum price to someone who is not currently an owner or otherwise involved in the business.

The professional fees and related expenses to design and implement a succession plan varies a lot depending on the complexity of the business, including annual recurring revenues, number of owners, number of customers, number of vendors, number of employees, number of potential successors, and the time available to implement the plan once the owner approves the design of the plan. In our firm, we will take the time to learn the answers to these and other key questions before quoting a legal fee and providing an estimate of other expenses, including accounting and appraisal experts.

Business owners need to develop the values and the capabilities of potential successors, and that can take some time. Most owners of small businesses don’t want to pass on their business or sell it to just anyone. They want to sell to someone who has values that are compatible with their own.

Then, there’s the question of capabilities. Are the candidates able to run the business? Some successful family businesses, for example, require that the family members have outside experience, possibly going to work for a different company to gain some perspective.

Another thing the owner needs to do is figure out how he or she is going to achieve lifelong financial security. How are they going to maintain their standard of living? Each of the owners who will be departing needs to revisit their estate plan and make effective use of the available planning opportunities. Some small businesses are going to attract estate tax, which can be mitigated through proper planning.

The successors need to have their own career plan. What are their goals and why do they want to run the business?

Every business should have a crisis plan that will put the appropriate players in place to take care of the business owners’ duties and responsibilities if he or she is unavailable because of injury or illness. This plan should be adopted as soon after the business is established as possible.

In addition to developing the owner succession, every business should develop management succession. Not every potential successor is going to have the skillset required to handle all of the different pieces of the succession puzzle. Some are going to be adept at managing processes or manufacturing procedures, others are going to be good at dealing with financial matters, and others will do best in marketing and sales. All of these things need to be identified so that the owner fits the right successors into the right management roles.

Family limited partnerships are not favored by most business experts because they require a general partner who has unlimited personal liability. Most advisors recommend a limited liability company (LLC) as the preferred business entity. LLCs provide great flexibility in setting ownership structures and management duties and responsibilities. An LLC can elect to be taxed as a disregarded entity, a partnership, or corporation (C corporation or S corporation) which provides many tax planning opportunities.

Every business with more than one owner should have a buy-sell agreement that spells out the each owner’s duties and responsibilities, how to settle ownership and management disputes, and how to value the business and pay the purchase price if an owner is removed, is incapacitated or dies.