You understand every aspect of your business — but what happens after you exit? Whether you’re nearing retirement or simply pursuing other priorities, it’s crucial to have a business succession plan in place. In this guide, business owners can learn all about the business succession planning process, from tax implications to best practices.
Key takeaways:
Business succession planning involves preparing for the transfer of ownership and leadership of a business. It can include plans for various reasons, including owner retirement, death, disability, or the sale of the business.
A complete business succession plan should answer four questions: Who will take over, how will the transfer be structured (and financed), what happens to the owner’s equity, and how does the business stay stable through the change?
Federal tax changes under the recent One Big Beautiful Bill Act (OBBBA) have meaningfully altered the tax implications of selling or transferring a business. These changes make timing and structure decisions even more consequential than they were just a few years ago.
For the owner, succession isn’t the end of their financial life — it’s the start of a new one. Post-sale legacy and personal financial planning should be considered alongside the succession conversation.
What business succession planning actually is
Business succession planning is a strategic process to prepare for the transfer of ownership and leadership of a business. Strategic plans can be adapted to cover one or more succession causes, including owner retirement, death, disability, or the sale of the business.
Plans should be made for transferring both ownership and leadership of the business. However, these are distinct transitions that often happen on different timelines. For example, a transfer of leadership often needs to happen years before the sale of the business in order to demonstrate its ongoing viability. In any case, a successful plan should answer four critical questions:
Who will take over the business (both in terms of ownership and leadership)?
How will the transfer of ownership be structured and financed?
What happens to owner equity?
How will business operations stay stable throughout the transition?
For many small business owners, thinking about business succession can be an emotional process. Ownership is often bound up with identity, and even starting the conversation of succession can feel like rehearsing your own exit. However, a business succession plan exists to make the process easier — both logistically and emotionally.
Why this matters now: The 2026 tax landscape
Tax planning is a major component of family business succession planning. And recent changes under the 2025 One Big Beautiful Bill Act have altered the math of selling or transferring a business. For business owners in the succession planning process, these are some of the most important changes that the OBBBA made:
Increased $15 million estate tax exemption
The OBBBA significantly increased the estate tax exemption to $15 million ($30 million for married couples with proper planning) in 2026. This figure will be adjusted annually for inflation from 2027 on.1
For many business owners and families, this increased exemption may reduce or eliminate exposure to federal estate tax. However, estate planning remains important, particularly for individuals with significant assets, complex family situations, or property located in states that impose their own estate or inheritance taxes.
If you have children, this may affect your estate planning process. Whether you plan to transfer business interests during your lifetime or as part of your estate plan, the increased exemption may provide additional flexibility. However, decisions regarding lifetime gifts should be evaluated carefully, as estate tax, income tax, and basis considerations can all affect the outcome.
Permanent 100% bonus depreciation
Bonus depreciation allows businesses to claim an additional depreciation deduction for qualified property in the first year, rather than spreading it over the asset's life. The OBBBA made this bonus depreciation permanent, applying to qualifying property acquired and placed into service on or after January 20, 2025.2
While bonus depreciation can provide a valuable tax deduction for qualifying business investments, business owners who expect to sell their company in the near future should evaluate the long-term impact before accelerating deductions. In some cases, reducing the tax basis of business assets today may increase taxable gain recognized in a future sale. If a business transition or sale is on the horizon, consult with your CPA to determine whether claiming bonus depreciation aligns with your overall tax and succession planning goals.
Enhanced benefits for qualified small business stock (QSBS)
The OBBBA expanded the potential tax benefits available to certain owners of qualified small business stock. For qualifying C corporations, eligible shareholders may be able to exclude some or all of the gain from the sale of their stock, subject to applicable requirements and holding periods. The law also increased the maximum gain exclusion available for newly issued QSBS after the OBBBA's enactment date (July 4, 2025).3
QSBS eligibility is complex and can be affected by the structure and timing of a business sale or transfer. Because of this, exit strategies should be adjusted appropriately if your business is qualified to issue QSBS.
Changes to corporate charitable contributions
New under the OBBBA is the introduction of a charitable contribution floor (rather than ceiling) of 1%. This means that corporations will not be able to deduct charitable contributions equal to the first 1% of taxable income.4 If charitable giving is part of your succession plan, care should be taken to implement the right mix of corporate and individual gifting to maximize tax benefits.
Permanent 20% qualified business income (QBI) deduction
For certain pass-through entities, the qualified business income deduction provides substantial tax benefits in the form of a 20% deduction. The OBBBA made this deduction permanent (it was previously set to expire under the Tax Cuts and Jobs Act).5 If your business currently qualifies for the QBI deduction, this change may influence any corporate restructuring you plan to implement as part of your succession strategy.
One final change worth noting that was not part of the OBBBA but may still be relevant is the Connelly v. United States Supreme Court ruling. The ruling clarified that company-owned life insurance used to fund a buy-sell agreement may increase the value of a business for estate tax purposes. Business owners who rely on life insurance as part of their succession planning should review their arrangements with their CPA and attorney to determine whether any updates may be appropriate.
Consulting with a qualified accounting professional or financial advisor is recommended to fully understand the implications of all of these changes.
The 5 Ds: The events that trigger a succession
There are five primary events that can trigger a business succession, and a proper plan should account for all of these possibilities.
Death: The unexpected death of a key decision maker and/or owner in the business.
Disability: The departure of a key leader and/or owner due to a disability that leaves them unable to perform key duties within the business.
Divorce: The divorce of one or more of the business’s owners or leaders, should that divorce trigger a shift in ownership or management. While this can be especially difficult to address, family-owned businesses in particular should not ignore this.
Disagreement: A substantial conflict or disagreement among business owners and/or leaders — or a disagreement between the business itself and other stakeholders (investors, key suppliers, etc.).
Distress: A state of financial or operational stress within the business that forces substantive changes to ownership or management structure.
Good succession plans should include well-planned-out strategies for each of these contingencies. The idea is to have the plan in place well before something drastic happens to ensure the business's stable continuation.
Your transition pathways: Who actually takes over
Business succession involves two primary transitions that can occur simultaneously or separately.
The first is a transition of management and future leadership. Ideally, this should take place well before the sale or transfer of the business itself. Leadership transitions can involve promoting an existing employee (often preferred) or bringing in outside help.
The second is a transition of ownership. This can be more complicated, with many potential recipients or buyers being viable options depending on your circumstances.
Some of the primary ownership transition pathways include:
Family transfer
Transferring to family members, whether directly or through a trust, is very common. Among family-owned companies, around 40% transfer to the next generation and become second-generation businesses.6 At the same time, succession plans for family transfers are often informal, with the US Family Business Survey finding that only 34% of US family businesses have a documented succession plan in place.7
Family transfers can be an asset for leadership continuity, but they can also involve complex interpersonal dynamics, particularly when multiple children are involved. Having conversations early with family and business stakeholders is crucial to ensure a smooth transition and protect personal relationships.
Sale to co-owner or partner
A sale to an existing co-owner or partner can expedite the transition, as the partner is already involved in the business. Usually, this involves a simple buyout of the exiting partner's equity, though tax implications should be closely considered. A management buyout, in which the existing management team purchases a controlling stake, is another option.
Sale to employees
Selling the business to key employees can be another succession option. This can be structured through an employee stock ownership plan (ESOP), a direct sale, a conversion to a cooperative business (co-op), and other avenues. Companies with leadership development programs to cultivate future leaders may be better positioned for this type of transition.
Sale to outside buyer
Selling the business to a third party or strategic buyer is another common outcome, particularly with the proliferation of private equity buyout firms in recent years. This approach can work well for certain industries, and PE firms in particular can help to ease the logistical burden of a business sale.
The key question is which exit strategy best fits your situation, legacy planning, and business structure. It’s also important to weigh the needs and wishes of other stakeholders. For instance, you may want to leave your business to your family — but if they have no interest in running it, that may not be the best fit for everyone involved.
A step-by-step succession planning process for business owners
The business succession planning process will differ for every business owner, but the basic steps could look something like this.
Clarify your goals and timeline. Focus on objective goals (such as an exit price) as well as more personal goals (such as the kind of legacy that's important to you). Be realistic about your timeline and ensure that the 5 Ds are planned for.
Value the business. Generally, this will involve working with a third-party consultant or firm to reach an estimated valuation. You will need to provide detailed financial information and tax documents for the last several years.
Choose and prepare your successor. Decide who will run the business, and if that person will also be the primary owner. Work directly with them to implement a transition plan, sharing your knowledge and resources to ensure a smooth transition.
Structure the transfer. Work with legal and tax professionals to properly structure the business transfer. Research and implement the optimal funding structure and document everything with the help of business law specialists. Work with your CPA to conduct personal tax planning in conjunction with your succession planning.
Review and execute when relevant. Review your plan with the help of a professional and any involved stakeholders. Then, execute the plan when the time comes — whether that’s your own retirement or another trigger.
Realistically, a successful business succession planning process may span three to five years or more. This supports the idea that business owners should start thinking about these strategies sooner rather than later.
Valuation calculations
Determine what the business is worth today and how that value is derived, typically using income, market, and/or asset-based methods to support pricing, tax, and buy-sell planning.
Successor selection
Identify and prepare the individual or team — family, key employee, or external buyer — best suited to own and lead the business, based on skills, goals, financing capacity, and cultural fit.
Buy-sell agreement and funding
Creation of the legally binding contract that sets who can buy an owner’s interest, when that transfer occurs (triggering events like death, disability, or retirement), at what valuation, and how the purchase will be financed (e.g., insurance, installment note, or third‑party financing).
Tax and estate planning
Coordinate the business exit with personal estate and income tax strategies, using tools such as gifting, trusts, entity structure, and timing of the sale to help minimize taxes and ensure fair, liquid transfers to heirs and other beneficiaries.
Operational handoff and business continuity planning
Document key processes, strengthen the leadership bench, and structure a phased transition so the company can keep running smoothly during and after the change in ownership, including contingency plans for unexpected events.
Post-sale legacy
Address what impact you (the owner) want the business and sale proceeds to have after the transition — such as family financial security, employee and community stability, and philanthropic or reputational goals — and align the succession structure and estate plan to support those outcomes.
Potential pitfalls
During and after your business succession planning process, keep an eye out for these common pitfalls.
Failing to plan for all contingencies: Most owners plan for their own retirement — but contingencies such as death, disability, and divorce are often not adequately accounted for.
Not coordinating business and personal estate planning: The business succession process should be closely linked to your personal estate planning to help minimize your tax liability.
Leaving the buy-sell agreement unfunded: A buy-sell agreement is commonly put in place well before the owner departs — but all too often it’s left unfunded. If an owner then passes away or becomes disabled, remaining partners must scramble to find adequate funds to cover the purchase. Some owners choose to use life insurance policies to fund a portion of buy-sell agreements.
Along with these, perhaps the biggest pitfall is simply not having an adequate plan in place. Research shows that around 40% of small business owners anticipate retiring by 2036, yet 70% do not yet have a formal succession plan in place.8
The Wharton Executive Foundation dug into this gap in a poll commissioned by The Harris Poll, finding that 70% of surveyed business leaders found that long-term succession planning felt futile in today’s fast-changing business environment.9
After the transition: Helping protect what comes next
Succession planning focuses on the business — but the outcome can dramatically change your personal financial situation. It’s crucial to include personal financial planning alongside your succession planning to work to help minimize tax implications and, more importantly, achieve the outcomes that are most important to you personally. Here are just a few of the key areas to consider:
Proceeds: Make a plan for how you will use the proceeds of the business sale. Having both a short-term and long-term plan is recommended.
Income changes: Determine how you will cover your day-to-day expenses, as you will likely no longer be generating income from the business.
Estate planning: Update your estate plan and tax strategy to match your new financial situation. Ensure that beneficiary designations are updated and that your CPA has a complete understanding of your current finances and tax strategy moving forward.
Investments and financial products: Adjust your investment and personal finance strategy to fit your current situation, risk tolerance, and financial needs. You may find that adding new products, such as annuities, can help replace lost income, or that adjusting the risk profile of your equity investments may be appropriate.
Building your planning team
Business succession planning will include relevant stakeholders (you, business partners, beneficiaries, etc.) — but it will also include a host of specialized professionals. During the planning process, you may work with:
Attorneys to draft legal documents, coordinate the legal transfer of the business, and protect your assets. Attorneys will generally be involved during the actual sale or transfer of the business, but they may also be involved in the planning stages.
Certified Public Accountants (CPAs) to file necessary paperwork with the IRS, plan out tax strategy, and review financial documents. A CPA should be involved throughout the process to ensure tax strategy and compliance are prioritized.
Business valuation professionals to calculate the estimated value of your business based on its free cash flow, industry, and market conditions. Business valuation experts will generally only need to be contracted for a short period of time before the sale or transfer process.
Financial professionals and advisors to help guide you through the process and coordinate the intersection of business and personal finance. A financial advisor should ideally be involved throughout the entire process.
Frequently asked questions about business succession planning
A succession plan is a documented exit strategy that establishes who will take over a business when the primary owner is no longer able to (or no longer wishes to). It can include transitions of both management and ownership, which may involve separate people.
A succession path can have any number of actual steps depending on the specifics of the business involved. Having said that, five key steps typically include:
Clarify your goals and timeline.
Value the business.
Choose and prepare your successor.
Structure the transfer.
Review and execute the transition.
The 5 Ds of business succession planning are death, disability, divorce, disagreement, and distress. They refer to the most common contingencies that may result in the need to transfer ownership or management of a business to someone else.
