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From answering emails to plotting out growth strategies, small and midsize business owners have no shortage of to-dos. That may explain the lack of business continuity planning: While nearly 100% of owners agree that an exit strategy matters, nearly 8 out of 10 don’t have a written transition plan.

A succession plan is about much more than just who takes over the business. It includes next steps for unexpected events, such as the untimely death or disability of an owner. Those next steps can help protect co-owners, employees, and beneficiaries. Here’s what to consider, and why a succession plan matters to help protect you and your family.

What’s in a succession plan

A succession plan maps out who is purchasing a business and how the sale will be structured. It generally includes:

• Timing: when you and/or other owners will step out
• Price: how much the business is worth
• Successor(s): who will become the next owner or owners
• Partner(s): which advisors or consultants would be helpful during the succession process
• Exit strategy: what the transition looks like
• Funding: how much is needed to buy out the departing owner or their family
• Personnel: which employees retain key knowledge

During succession planning, a business owner and advisors, such as tax and financial professionals, can help clarify any blurred lines between company and personal financials. Those may include who pays for what, what happens to physical and intellectual property, and tax strategies.

How a succession plan helps prepare for the unexpected

For business owners, the unexpected can take many forms, from natural disaster to divorce and death. A solid succession plan covers as many of those what-ifs as it can. “It’s asking yourself what’s going to happen if those things occur, and do you have a game plan,” says Patti Bell, AVP, Benefits and Protection for Principal^®. “You might have a goal in mind about what you’re going to do with the business, but what are you going to do about the things that you can’t plan for?”

Typically, a succession plan includes next steps should something happen to a current owner such as death, divorce, accident or illness, bankruptcy, or criminal conviction. While some of those contingencies may seem far-fetched, identifying and thinking through them helps address potential weaknesses now, before it’s too late.

How business continuity and valuation are impacted by a succession plan

Part of the reason to create a succession plan is to ensure the business continues to grow, particularly when it comes to customer relationships. Should disruptions occur, who will assume key roles to ensure quality of service or product (and future business prospects) are not impacted? A succession plan can offer details.

A succession plan that includes successor management enables business valuation professionals to look at both objective and subjective factors to determine any effect on company value. A formal valuation usually includes reviewing company leadership, client and industry relationships, and performance levels.

Additionally, a succession plan may identify a concentration risk with significant revenue tied to a small number of clients or contracts. Succession planning may also be a good time to review contracts with key clients, bankers, and suppliers to understand any change of control provisions and take action to avoid potential issues.