business continuity and succession planning

Business Continuity and Succession Planning Made Easy

Mistakes Owners Make During Business Continuity and Succession Planning

Business owners pour years of time, energy, and resources into building a successful company. But what happens when you’re ready to retire, face an unexpected illness, or want to pass the reins to the next generation? Unfortunately, many business owners delay or mishandle the transition, putting their company—and legacy—at risk. Let’s explore the connection between business continuity and succession planning and how to avoid the most common mistakes made when exiting a company.

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Understanding Business Continuity and Succession Planning

Although they serve different purposes, business continuity and succession planning are deeply intertwined. Together, these plans protect your business against uncertainty. Succession ensures that leadership transitions occur smoothly; continuity ensures that operations continue uninterrupted.

  • Business continuity planning focuses on how your company will continue operating during an unexpected disruption, such as natural disasters, the loss of a key employee, or a cybersecurity breach. It’s all about minimizing downtime and maintaining essential functions during a crisis.
  • Succession planning is the process of preparing new leadership—either internal or external—to take over when current leaders step down or become unavailable. This ensures the company isn’t thrown into chaos when ownership or management changes.

While related, continuity and succession serve different purposes. Many owners believe a disaster recovery plan covers leadership changes—it doesn’t. Others draft a Will but never think through how the business will function in their absence. You need both types of planning to ensure stability.

Common Business Continuity and Succession Planning Mistakes

Many business owners wait too long to plan—or avoid it altogether—because they’re focused on day-to-day operations. Here are some of the most common pitfalls:

Failing to Plan Early Enough

One of the biggest mistakes is assuming succession planning can wait until you’re close to retirement. In reality, unexpected events like illness, injury, or death can strike at any time. Without a plan in place, your business may face leadership gaps, financial uncertainty, or legal battles.

In fact, it was precisely this situation that propelled me into this line of work. I was asked to help prepare a business to be sold so that the owner could partially retire and create wealth for his spouse. We initially estimated the value of the business to be about $250,000 because of its customers’ recurring contracts. The earnings were consistent, so there was high confidence it could be quickly sold. 

About five weeks into the process, the owner suddenly passed away. The owner was also the operator, and there was no one to immediately step into the owner’s role to do the actual work. The confluence of events resulted in the business being sold for the value of its old equipment assets, which was about 10% of what the business could have sold for during the owner’s lifetime.

Not Identifying the Right Successor

Many small businesses are family-owned. While family-owned businesses enjoy the benefit of familial solidarity, their strength is often threatened when it’s time for leadership or ownership to be passed down.

Some owners default to handing the business to a child, a relative, or a partner, without evaluating whether they’re truly qualified. A poor fit at the top can damage company culture, drive away talent, and hurt profitability. Succession plans help ensure the right candidate is chosen and has had adequate training before they take their place at the helm. 

Lack of Formal Documentation

Even if you’ve had conversations about succession, verbal agreements aren’t enough. Without written documents—such as buy-sell agreements, ownership transfer terms, and updated corporate governance—your business is vulnerable to disputes and legal complications.

Overlooking Tax and Legal Implications

Transferring ownership or assets without proper planning can trigger significant tax liabilities or violate corporate bylaws. Owners often make these moves informally, only to discover costly consequences later. Professional valuations of your holdings and early tax planning can ensure you have a healthy parachute (and no surprises) when retirement comes.

Ignoring Senior Leadership and Stakeholders

No matter how good your succession plan is, it’s doomed to fail if nobody’s willing to carry it out. Transparency is key to a smooth transition; your employees, successors, and stakeholders must be committed to your vision. 

Openly communicate with your team so everyone understands the process and their role in it. If they don’t lend their enthusiastic support, explain your choices and keep them close during the transition to allay their fears. Let them see the benefits of business continuity and succession planning firsthand, including attracting new talent, preventing knowledge loss, and a steady rise in profit. 

Failing to Make an Exit Plan

After sacrificing years of time and money to start a business from the ground up, it can be hard to let it go. Some leaders are reluctant to retire because they have a psychological investment in the company, creating significant barriers to early and effective succession planning.

Everyone wants to live forever, but so far, nobody’s done it. The benefit of being in charge is deciding how and when you’ll leave the company—and on what terms. Create a phased transition plan to help incoming leaders learn the ropes and break down barriers when passing the baton. Easing out of and into new roles creates a more harmonious transition, giving incoming leaders time to understand your values and how you do business.

How to Create a Succession Plan With Business Continuity in Mind

Creating an effective plan isn’t just about naming a successor—it’s about building a framework that ensures your company can weather change without missing a beat.

Here are the steps to get started:

Start Early

You may think that succession planning doesn’t reap immediate benefits, and overlook it as a critical component of your current business as a result. However, we’ve repeatedly found that succession planning now strengthens your business, supports future growth, and allows for the longevity and legacy you desire. 

Begin planning at least 5–10 years before you expect to transition out of the business. This gives you time to mentor successors, test strategies, and update plans as your company evolves.

Assess Key Roles

Identify the critical roles in operations and what would happen if those individuals were to leave suddenly. A successful business continuity plan considers both ownership and operational leadership. Would vacancies be filled by outside talent or internal employees? Internal candidates have the advantage of understanding company culture and operations, while external candidates offer fresh perspectives and new ideas.

Develop Your Talent

Evaluate your internal team. Where do you see potential for leadership? A detailed succession plan should outline the strategies, timelines, and responsibilities for transitioning employees. Invest in your successor(s) training, mentorship, and development so they’re ready when the time comes.

Create an Estate Plan

Some aspects of small business succession and continuation planning are tied to the owner’s estate plan. Wills ensure your personal assets are transferred according to your wishes, while trusts can minimize taxes and pass down business interests. If you’re incapacitated, advance directives and powers of attorney are vital to a successful business continuity plan, as they provide directions for your heirs and partners.

Draft Formal Documents

Your succession and continuity plans should be written, legally sound, and aligned with your corporate structure. This may include:

  • Buy-sell agreements
  • Shareholder agreements
  • Operating agreements
  • Contingency management plans

Bonus: Communicate with your financial institutions, insurance providers, and other key supporters of your business. These vendors may need a specific document signed to allow your continuity plan to function properly with them!

Update and Review Regularly

As your business evolves, so too should your succession plan. It’s essential to monitor the plan’s effectiveness and make adjustments as necessary to reflect changes in the company’s strategy, market conditions, or the emergence of potential successors. Review your plans every 1–2 years to ensure they reflect current circumstances, leadership, and company goals. By keeping the plan up to date, you can ensure that your company is always prepared for a leadership transition.

What is the Basis of Authentic Leadership? Let Us Show You

The best part of succession planning is that it allows you to chart a vision for your company and plan your future at the same time. If done correctly, a successful plan will give you the security and freedom you desired when you first started your business. We can help ensure your company is always prepared for a leadership transition. Email us at hello@yolofskylaw.com today to learn how to protect your life’s work.