The COVID-19 pandemic has caused many business owners to reconsider their retirement horizon. For some, retirement and succession planning is an issue they have never addressed or even thought about.

A robust succession plan is important for the longevity of your business. An exit that is too fast or without direction can leave a leadership vacuum and damage relationships with existing clients and customers.

The following is a summary of what a good succession plan should address. As you will see, good succession planning takes time and should not happen all at once.

Business succession planning is a general term that can be broken down into six separate transitions:

1. Founder transition. How long do you plan to stay involved in the business? What are your retirement plans, if any? What financial resources will you need for retirement, and will it be independent of the day-to-day operations of the business?

2. Family transition. If you plan to leave your business to your children, how will roles and power relationships change? How will family harmony be maintained through this transition? Should outside advisers be brought in to help with this transition (e.g., succession advisers, counselors, mediators, etc.)?

3. Business transition. How will the business operations and customer relations be maintained through other transitions? Should a written strategic plan be implemented? If you are leaving your business to your children, how will the family balance an outward focus on the business and its customers with an inward focus on succession?

4. Management transition. Will management be made up of family, nonfamily or both? How will new leadership be evaluated? What is the schedule for transferring control of day-to-day decisions? How will you determine when a child is ready for more responsibilities? How will you incentivize good management? What happens if someone no longer wants to work in the family business?

5. Ownership transition. How will ownership be transferred? A sale to management? A sale to a third party? A sale or gift to children? Will children initially have nonvoting ownership? It is important to remember that ownership does not equal control.

6. Estate transition. How will you coordinate your estate plan to ensure that the other transitions above occur as planned? How do we minimize estate tax exposure (if applicable) and provide liquidity to pay any tax liability?

Many of the transitions above will be accomplished through formal documentation (e.g., operating agreements, buy-sell agreements, trusts, etc.). Still, some companies also use informal documents to memorialize company or family values, goals, visions, and mission statements.

Many successful succession plans have periodic meetings (often annually) to discuss succession progress and continue to groom successors to think like an owner.

Every succession plan is unique to the business and the goals of its owners.

Zahrt is a Foster Swift business and tax attorney.

Source: Foster Swift, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.