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9 min read

Succession Planning 101: Steps and Processes for Advisory Companies

Jul 13, 2021 2:05:03 PM

All businesses, regardless of type and size, have an organizational structure that determines how the company is managed on a daily basis. While they may have all the right advisors in place for the current state of the business, it is important for organizations to make sure they have a plan in place to keep the business thriving long-term, regardless of who is at the helm. Succession planning, as both a concept and a strategy, establishes a framework for identifying and developing next-gen talent to replace the founder when she/he exits the business.

Succession Planning 101

What Are the Seven Steps for Company Succession Planning?

While it may be difficult to predict when a succession event will (or should) take place, it is best to begin the succession planning process early enough to construct a thorough and seamless plan that facilitates both the qualitative and quantitative parts of the process. While seven to ten years before the founder’s retirement are ideal for internal succession, or two to four years for a merger/sale, timelines are often much shorter. Unforeseen events within a company, health issues, and changes-of-heart can occur, even for the steadiest of businesses and owners. This underscores the importance of defining a strategy and committing that plan to writing as soon as possible. Even if there is no inkling that changes are imminent, it is critical to begin with the end in mind since no one lives forever.

Here are seven key steps to succession planning to keep in mind:

  1. Determine Objectives and Clarify the Owner’s Vision: The preferred outcome for succession planning may be different for each individual business, however, the goal for most will be for the business to continue to thrive with the next generation of advisors at the helm. It is crucial to have clarity on the primary objectives within a succession plan. This could include objectives such as improved retention, sustaining long-term growth, identifying successors for key positions, defining how the plan will be funded and taxed,, and creating business continuity.
  2. Identify Key Positions and Leadership Requirements: A succession plan should clearly account for the integral roles that are critical for organizational success. An assessment of the career trajectory for the employees may inform the priority each role has within a succession plan and who will assume the duties of the founder upon his/her exit. If planned retirements are in place, a succession plan can be executed with even more focus and precision. For all key positions, it should be determined what the primary skills, knowledge, and qualifications are required to do the job effectively and ensure that a business continues to run smoothly with the next generation of leadership.
  3. Evaluate Organization for Potential Candidates: The organization may already have several key employees with high potential that should be considered as part of the succession plan. By identifying and developing employees to meet the requirements of leadership positions in the company, a business can proactively plan for a succession event and give employees more incentives in the process. If the firm lacks such candidates, developing an alternative strategy as a back-up is critical.
  4. Create a Development Process: Organizations should always be investing in the career development of internal talent within the company. However, in the midst of succession planning, this becomes even more important. Succession choices should have a plan in place for training and development to help them grow into viable candidates for leadership roles in the organization. A company may consider having these employees take part in mentorship programs, rotating jobs within the organization, or even furthering their education with courses that will help develop a relevant skillset for the long-term goals of the succession-planning process.
  5. Look Externally: While there is significant value in working to develop employees for key roles in the future, an organization should have an open mind and be willing to look elsewhere for a successor/buyer. In some cases, the best candidates for stepping into an ownership role may be found externally. External candidates may already have the necessary experience, knowledge, and qualifications to help fulfill a successful transition. This may be especially valuable in instances where the succession planning period begins on short notice with an urgency to fill a key management role. In most situations, however, a thorough assessment of both internal and external talent is part of an effective succession planning process.
  6. Communicate and Implement the Transition Plan: Once the succession plans have been established, it is important to begin communicating the plan to all key stakeholders involved since this takes time. If internal employees will be the successors, they should be aware of the plan and career development path ahead of them. This open communication will also give the employees an opportunity to verify that they are interested in working towards the ownership role within the company and understanding what that means. Once the key employees are on board, the development process should begin with long-term succession in mind. Trial runs can also be beneficial for helping employees test the waters of their future role. This could include shadowing, gradually taking on relevant responsibilities, or even filling in when the owner(s) are out of the office. As the date for the founder’s eventual retirement gets closer, it is a good idea to have some extended and planned absences so the next generation has an opportunity to fill the leadership role before the founder(s) are gone for good.
  7. Formalize Plan Documentation: Since succession planning requires various forms of transition and financial implications, it is important to make sure to formalize the process through supporting documentation, including a formal valuation beforehand. The succession planning will likely include the detailed written plan as well as the agreements with key employees and shareholders. In addition to these agreements, company records and documentation should be well organized to help facilitate a seamless transition within the company.

As the succession planning documents are formalized and the career development of the key employees or candidates is underway, the company should be in a solid position to execute the transition following the agreed-upon timeline.

How Do You Create a Succession Plan for Your Company?

When developing a unique and comprehensive succession plan, there must be a deep understanding of the organization with situational context to lead to an effective strategy. It is highly recommended to work with third-party experts who are well-versed in the succession planning process and can provide objective recommendations to lead a company into a prosperous future. The general roadmap for creating a succession plan is as follows:

  • Information Gathering: The succession planning team will consult with the company’s management team to understand the business, their preferences, the participants, and goals. During these sessions, there should be an assessment of critical positions, talent within the company, and discussions around leadership development (among other issues). This will help shape initial recommendations for a company’s succession plan in a way that is compliant and tax-effective.
  • Analysis: Leveraging the insights collected in the information-gathering phase and evaluating the most relevant strategies for the company, a deeper analysis should be conducted. During this phase, the succession planning team should construct detailed financial models to explore the implications of the plan for all key parties involved. During this phase there should also be an assessment of the tax impact both before and after the succession process takes place for all parties.
  • Planning: Once all of the pertinent information has been gathered and analyzed, a detailed succession plan can be created. This should include key recommendations for the equity transfer, financing, tax strategy, timelines, role transition, compensation, and a strategy for implementation. The approach should be signed off on by all members of the team before moving the process forward. This will ensure that all parties are aligned and in agreement of the proposed succession planning strategy.
  • Execution: Finally, it is time to put the plan into action. The succession team should work with the company’s owner(s) to prepare and provide all of the aforementioned agreements and arrangements needed to support the succession strategy. The development of career skills and knowledge for identified employees within the organization can get underway as the company works toward a future with the next generation of leaders.

Why Is Succession Planning Important?

Coworkers Having a Meeting

Succession planning is a process that is very important for the long-term health of the organization as well as for the benefit of owners/founders within a company who may be transitioning away from the business.  

For the company itself, succession planning offers the potential to mitigate risks while putting them in a position to grow over time. When owners are planning on retiring or leaving the company, a succession planning strategy can ensure that the business continues to run smoothly and without significant interruption, while also allowing the exiting owner to monetize their equity. It can be an effective way to establish a framework to develop employees and help them obtain the skills needed to take on roles with more responsibility in the company. This also can lead to employees feeling empowered within their roles and help them set goals to bring more value to the business. An effective succession plan and a commitment from management to provide mentorship can facilitate more transparency, collaboration, and satisfaction with the job knowing that there is a program in place to develop and progress.

For owners of a business who are ready to move on to new opportunities or retire altogether, succession planning can be highly effective in facilitating that transition. It can offer the benefit of allowing the owner to sustain growth within the business as they gradually work less - and in some cases earn more at the same time. They will know that they are leaving the business that they built in good hands and in a position to be successful. Succession planning can also help address needs within the business to build more value and secure a higher sales price. As the “Baby Boomer” generation of business owners continues to exit the workforce, many companies will rely on succession planning as a means to continue serving their clients and community.

What Are the Challenges of Succession Planning?

Succession planning comes with its own set of challenges and roadblocks to success. Many of the pitfalls relate to basic human nature and relying on the engagement of employees and stakeholders to carry out the recommended strategy. By understanding the common challenges, they may be easier to overcome, which will ultimately increase the effectiveness of the succession plan.

  • Managing Emotions: Change and uncertainty within a business cause feelings of anxiety or stress - amongst employees, family, and clients. Even when change is positive, most are still resistant to it, at least at first. If done well, succession planning can help alleviate some of these negative feelings by presenting a roadmap for succession in a way that is gradual, clear, and transparent, and demonstrates the commitment to helping the organization thrive. During the succession planning and implementation process, the lines of communication should be open between the staff and owners so all parties can move forward with confidence.
  • Resisting Bias: Bias may naturally be present when determining the ideal successors. The assumption that since an employee has excelled in their current job that they will excel as an owner may also not always be accurate. Bias can also influence succession decisions to select talent that is similar to the previous person in the role or fits stereotypes of who would be expected to excel in the given job. Instead, skills and characteristics for each role should be determined beforehand and candidates should be assessed against that criteria as objectively as possible.
  • Development: Even with a career development plan in place, founders may not commit themselves to take on the necessary actions to develop the intended successor. When this occurs, the successor candidate will not have the training, skills, or knowledge required to take on the intended role. In this instance, a company may be forced to hire external talent that has a proven record of performance and experience to succeed in the job. During the succession planning process, it is critical to acknowledge that the strategy and written plan are important, but there is significant work to be done internally to prepare the next generation of owners to succeed.
  • Confronting Mortality: Succession planning requires some people to consider uncomfortable thoughts about the future, such as their own retirement, resignation, disability, or death. This can cause unexpected emotions or uneasiness, but not addressing the inevitable can put the organization at risk. Having a succession plan in place will establish continuity for the company moving forward. It is critical to address this before your team or clients ask; by the time they voice their concerns, they have likely been thinking about them for a much longer period.
  • Keep Planning for the Future: Succession planning is not something that a business can set and forget. In fact, it may need to be revisited on an annual basis to make adjustments. Things change amongst employees, relationships, conditions in the market, and business trends. By having an updated plan, the company will always be more prepared to address significant transitions when they arise.


Whether you are preparing for the future of your business or preparing for a profitable exit away from your business, succession planning is critical. It can help ease the transition process for businesses and departing owners alike, and set actionable steps in place to create the best outcome possible for all parties. Succession Resource Group is here to help you look forward, develop new leaders, and be ready for whatever the future may bring for your business.

David Grau Jr.

Written by David Grau Jr.

David Grau Jr., founder and CEO of Succession Resource Group, specializes in succession and M&A consulting for advisors. As a leading M&A consultant with a history of service in the United States Navy, David is recognized as a thought leader and accomplished speaker. He is prominent in the financial services industry, especially on topics related to M&A and next-generation strategies, having delivered over 200 presentations for organizations like the Financial Services Institute (FSI) and FPA.