A comprehensive succession plan is a set of legal guidelines that ensures an orderly transfer of financial control and executive responsibilities to a new generation of leaders. If you take a multi-prong approach to succession planning your family can avoid a messy succession battle.

When designating who will take the reins, business owner must identify the individual who has the skills to run a business. A succession plan can sometimes divide the leadership roles, with one person running the business and another in a senior role overseeing long-term development and planning.

Business owners also must consider their personal estate plans when devising a succession plan.

What If You Co-Own The Business?

When multiple owners are involved, a succession plan should create rules and procedures for other owners who might want to hire friends and relatives for key positions. The company’s founders must consider what happens if an owner gets a divorce, suffers a disability, or declares personal bankruptcy.

These types of situations can change the rules within a buy-sell agreement—the master document that details the rules between who gets what and how a company is organized in the future.

A succession plan can also state the rules for issues involving transferring of equity and/or shares of a company to family members. In addition to putting into writing exactly who can be a transferee and the amount of equity they’re allowed, business owners should use the succession planning process to address issues related to voting rights. A succession plan should also specify the financial terms at the time of an owner’s death or sudden exit.

While avoiding such a decision-making process might appeal to younger executives, delaying these decisions and processes creates more uncertainty in a company’s ongoing success.

Be Proactive With Your Plan

Whatever the size of a business, any business owner needs to create a succession plan sooner rather than later. If you don’t, you may leave a mess for the next generation of owners and employees.

Business owners need to be proactive about estate planning and succession planning. Ask an experienced estate planning attorney about both processes as ongoing strategies. That means you don’t create an estate plan or a succession plan and file it away until you want to retire. Circumstances can change, so you’ll probably periodically need to review it and make sure everything is up-to-date.