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Succession planning: Three common options, explained

A succession plan tailored to your business can help to better ensure a smooth transition. This is true whether that transition involves setting the business up for success under new ownership or not. These plans generally take one of three paths, either the owner is grooming a successor of their choosing, preparing to sell, or shutting down the business.

Option #1: Groom a successor.

Those who are choosing a successor will likely put some effort into preparing this individual for their new leadership role. It is often wise to begin years in advance and to choose more than one potential candidate. This was a strategy recently implemented by Jeff Bezos when he handed over leadership of Amazon to his successor, Andy Jassy. The move was not a sudden decision. Instead, Mr. Bezos had put two candidates for the leadership role into positions to help prepare them to take over the business five years ago.

It can also be helpful to have a transitional period after the new leader takes over the business. This may involve an agreement where you remain available in a mentor-type role to aid the new leader as needed.

Option #2: Prepare documents to present to potential buyers.

If looking to sell the business, it is helpful to organize documents to show the business’ strengths to better ensure you get a fair price. This can include a record of revenue and profit as well as all asset owned by the business.

Option #3: Closing down.

There are certain steps you must take if the business has run its course and you have chosen to close down. The Internal Revenue Service (IRS), for example, requires the business owner file a final return as well as additional forms. The exact forms depend on the business structure.

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