This is What a Succession Plan Looks Like Six key transition steps can help ensure your company and employees thrive, and you get the value you need and deserve from owning the business.

Transitions and change are hard—especially for small business owners. It can be tough to wrap your head around leaving something you created and led, and even harder if multiple people might be interested in taking over. That might be part of the reason why family-owned businesses face greater succession risks: Only about one-third of them have a succession plan in place.

"Often the hardest part is the emotional aspect," says Mark West, national vice president of business solutions for Principal®. "If you've dedicated much of your life to your business and it's part of your identity, it can be really hard to walk away."

It doesn't have to be that way. Taking the time to create a thoughtful succession plan can be good for you (helping you figure out retirement income and a plan, for example) and good for whoever is taking over (giving them time to figure out how to keep growing the business). These six steps are key.

Step 1: Put a date on the calendar.

"Someday" isn't good enough, even if you're reluctant to give up work that's intertwined with your identity.

"If you're the sole owner, it's not too soon to start thinking about it in your 50s," West says. "That way you give yourself about a decade to develop and implement your plan. If you have co-owners you'll want to start even earlier."

Step 2: Establish your business's value.

An informal business valuation is an estimate based on an analysis of the company's financial position. There are a few ways to create a valuation.

• Asset based, which compares assets to liabilities or net cash value of everything if it were sold.
• Earnings value, which looks at past earnings and makes a reasonable assumption about future projections.
• Market value, which looks at similar businesses and recent sales.

Even if you have no immediate plans to sell, a business valuation is something you can and should update regularly. It allows you to project how much life insurance you might want for business purposes to help protect your family against future loss, for one thing.

"Succession planning is really a progression for a sole owner, including thinking about those years when you create a plan but haven't transitioned out and what that looks like if something should happen to you," West says.

Step 3: Figure out who wants the business.

Although family-owned businesses may offer a natural succession starting point, just because you don't have a family doesn't mean you can't find a buyer. "People typically transition out in one of three ways: sell it, give it to someone in their family, or keep ownership but groom others to run it," West says.

For the latter choice, key employees offer one option; owners of the competition may be another. If you don't have someone in mind, a financial professional can help you identify possibilities.

When it comes to successfully transitioning to family such as a child, West says "think of them not as your child but as a person who's going to run your business. Do they make good decisions, are they effective at communicating, are they visible and impactful in the community, and do they care about employees like you do?"

Take the next steps to help grow your business with Principal.

Step 4: Hire experts.

A business succession strategy also includes a tax professional, legal professional, and financial professional. Working with an experienced team can help you accomplish a successful transition.

We may help connect you to a financial professional near you.

Step 5: Choose the type of succession strategy.

Who takes over your business (and if you're related to them) may influence whether you sell, gift, or maybe try a combination of the two (PDF). That sale type should also accommodate continuity planning. "Many people haven't thought about what's going to happen if there's an event like a divorce or bankruptcy, and what's the road map for if those events occur," West says.

Step 6: Do what you can to retain valued employees.

Every step of succession planning helps you ensure the new owner doesn't inherit a management team or staff riddled by departures. Retention or incentive plans linked to a required service period or specific date following the sale could help ensure a smooth transition. And life insurance for the business owner could help protect those promises made to key employees.

"Keep checking in with your succession plan, especially with key employees, to make sure everyone's head is in the same place and nothing big has changed," West says. "What made sense when you created the plan may not make sense when you're closing in on retirement."

You're busy running your business today. Get help planning for tomorrow at principal.com/benefits.