The 4 stages of succession planning

Succession planning is a journey. This article provides an overview of the entire process. Or you can explore each stage in more depth by following the links below:

A farmer shakes hands with a buyer from a competing company in an orchard, as the buyer stands beside a van loaded with crates and holds a clipboard

For many business owners, their company is much more than an income source. It’s also a legacy, a central part of their identity, and the foundation of their family’s wealth.

Yet owners often delay planning for their eventual exit. Some are consumed by daily operations. Others may feel overwhelmed by the process. But when business owners approach their exits without clear plans, business values can fall, relationships can suffer, and families can face financial stress.

A thoughtful succession plan helps avoid those outcomes. It offers a road map to protect what’s been built and make a smooth transition on the owner’s terms.

Business owners and the financial professionals who guide them can use this framework as they embark on the succession plan journey.
1

Discovery: Defining goals and identifying successors
2

Planning: Aligning business goals with succession strategies
3

Implementation: Formalizing and funding the plan
4

Periodic review: Adjusting the plan over time

Stage 1: Discovery

Every successful transition plan starts with clarity. Before drafting documents or running numbers, owners should ask themselves, “What do I want this transition to look like for myself, for my family members and for the business I’ve built?”

Stage 2: Planning

At this stage, business owners begin turning their vision into a workable plan. The focus shifts to aligning business goals with succession strategies and ensuring that the transition can be executed smoothly when the time comes.

Clarifying the path forward

Using the goals defined in the discovery stage, the owner identifies viable paths for transitioning the business. Key decisions include who will take over, how ownership will be transferred and what events (such as retirement, death or disability) might trigger that transfer.

Determining business value

An objective valuation is essential. It sets expectations for all parties and informs decisions about funding, timing and overall feasibility. Knowing what the business is worth can also help the owner plan for retirement income or estate equalization among heirs.
A financial advisor and a shop owner discuss business over a laptop in a café.
Establishing the buy/sell framework

For many owners, a formal buy/sell agreement becomes the backbone of the succession plan. This agreement defines:
  • Triggering events for a sale (e.g., retirement, death, disability)
  • A method for valuing the business at the time of transfer
  • Payment terms, such as one lump sum or multiple installment payments

At this stage, owners should also think about how the plan aligns with their estate planning. Many family businesses require balancing fairness between heirs who are active in the business and those who are not, which can involve inheritance equalization strategies. While the buy/sell agreement itself will typically be drafted in Stage 3, its key considerations, such as triggering events and valuation methods, should be discussed now.

Stage 3: Implementation

A financial advisor in a suit meets with a chef and business owner in a modern, industrial-style kitchen to discuss business matters

Once the groundwork has been laid, it’s time to move from ideas to action. Implementation is where the plan becomes real. Decisions are formalized, agreements are signed and the chosen path is set in motion. This stage doesn’t need to be complicated, but it does need to be thorough. Without formal documentation and funding in place, even the best intentions can fall apart when the transition is triggered.

Formalizing the plan
A key part of implementation is putting legal and business documents in place. The most common is a buy/sell agreement, which outlines the terms under which the business will transfer ownership. This includes:

What events will trigger a sale (e.g., retirement, death, disability)

How the sale price will be determined (ideally tied to a formal or formula-based valuation)

Payment terms — one lump sum, an installment plan or another arrangement

Even in family-run businesses, a formal agreement helps prevent misunderstandings. It ensures that everyone is on the same page and provides a clear path forward when the time comes.

Choosing and preparing the successor

If a successor has been identified, this is the time to formalize their role and responsibilities. That might mean stepping into leadership gradually or taking full control at a specific milestone. Either way, clarity helps ensure a smoother transition.

Training is also essential. Many successors are capable but may lack experience with specific aspects of the business such as managing financials, handling legal matters or leading strategic decisions. Allowing time for mentorship can ease the learning curve.

Coordinating with other plans

Succession plans don’t exist in isolation. They should align with the owner’s estate plan, business continuity plan and any governing documents (such as operating agreements or shareholder agreements). Ensuring that all pieces work together reduces the risk of conflict or confusion.

Funding the transition

A well-written agreement means little if there’s no way to pay for it. That’s why funding is a critical part of implementation. Common options include:

Life insurance: Often used to fund buyouts in the event of death; the death benefit provides liquidity for the surviving party or the owner’s heirs

Installment notes: Allow the successor to pay over time, though this depends on the business’s ongoing success

Sinking funds or savings: Helps prepare for a future purchase but may take years to accumulate

Loans: May be an option, though lenders can be hesitant if the successor lacks a track record

Most buy/sell agreements in closely held businesses are structured between existing co-owners and funded with life insurance. This provides liquidity for the departing owner’s family and stability for the remaining partners. But each funding option carries risks if not monitored: Installments may falter if business performance declines, loans may overburden successors, and sinking funds can fall short if an owner exits unexpectedly.

It’s also critical that these agreements align with estate documents, shareholder agreements and business continuity plans to avoid conflicts or gaps.

Stage 4: Periodic review

A well-built succession plan isn’t something to file away and forget. Businesses grow, goals shift, people move on. That’s why regular review is the final, ongoing stage of effective planning. Periodic check-ins help ensure that the plan still reflects the owner’s wishes, the business’s value and the readiness of all parties involved.

For businesses with multiple owners, periodic reviews should also confirm that co-owner agreements remain fair and properly funded. For financial professionals, this stage is more than maintenance; it's an opportunity to deepen client relationships by ensuring that the succession plan stays current as the business and family evolve.
A business owner sits at a wooden counter in a modern café, holding a smartphone, with metal kegs and industrial piping in the background
Keeping stakeholders informed
Even the best plan can fall apart if no one knows it exists. That’s why part of the review process should include making sure key people know:
  • What the plan is
  • Where to find it
  • What their role will be when the time comes

Staying on course

Succession planning involves both an exit strategy and business continuity. Regular reviews help keep the plan aligned with the owner's long-term goals and the company's evolving needs. And as with any good business process, consistency builds confidence.
A person talks on their smartphone while looking at their  laptop in a stylish retail space.

Start now to shape what’s next

Succession planning takes time, and the details will evolve, but momentum matters. Taking the first steps now creates clarity, reduces risk and opens the door to a smoother transition. With a straightforward, structured process, business owners can build a plan that reflects their goals, supports their family and ensures continuity for the business as circumstances change.

Start the conversation
Use the 4-stage framework to help clients assess where they are in the succession journey. Start with questions such as:
  • "Have you identified who you want to take over the business?"
  • "Do you know what your business is currently worth?"
  • "Have you documented how ownership will transfer when the time comes?"
Then, explore how you can help them clarify goals, structure the transition and coordinate their plan with funding, retirement and estate needs.

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