Entrepreneurs pour so much time and energy into launching, running and growing their business that they often fail to prepare for the day when they will eventually let go of the reins.

However, succession planning - the process of preparing to hand over control of the business to others - is essential to ensure that the business survives when the original founder retires or dies.

Michael Cosgrave, a director with Hibernian Life, has been taking part in a road show organised by the Small Firms Association (SFA) to explain the importance of succession planning to owner-managers of small businesses. Cosgrave advises entrepreneurs to make provisions for two basic eventualities - living into retirement and dying before reaching retirement.

A lot of people see their business as their pension, he says, but they don't know what income it will provide them with. "The message we're trying to get across is - it's not at what age you want to retire, it's on what income you want to retire," he says.

In other words, entrepreneurs with a rose-tinted view of living it up in their old age and finally enjoying the spoils of their labour need to take a cold, hard look at exactly what income their pension will provide and see whether that matches up with their expectations. "You have to provide for tomorrow today," he advises.

From speaking to business owners at roadshows, he estimates that the number of entrepreneurs who are financially prepared for their retirement is very low.

"I would say 10 to 20 per cent in reality," he says. Although many have some form of pension in place, very few know whether they are contributing the right amount and what standard of living it will provide for in retirement.

In the case of a family business, the entrepreneur may decide not to sell the business to a third party when they retire, but rather to pass it on to the next generation. But even if the business is remaining within the family it is vital that the parent makes adequate provision for their retirement. Cosgrave advises that business owners may be wiser to do this by maximising their pension contributions while they still have control of the company, rather than agreeing to draw an income out of the company once the child takes over. "What you're doing is controlling your own destiny," he explains.

However, he points out that in many cases the child may not be up to the job of running the family business, and says that the smart entrepreneur will recognise this and select a more suitable successor. And indeed, quite often their children will have gone off to college, got a good education and seen a bit of the world and may not have the slightest interest in coming home to run the family trade. For these two reasons, businesses are less likely now to be handed down from generation to generation, he says.

If two co-directors are running a business, then the succession plan should make provision for the possibility that one of the partners may die before retirement. Without a plan in place, very acrimonious disputes can blow up and can even cause the business to fail. For example if one of the partners dies, then his family will inherit his shareholding in the business. If plans haven't been put in place for this eventuality, the family could find themselves unable to sell the shareholding, the surviving director may not be able to raise the funds to buy the shareholding, and arguments over the valuation of the business are highly probable.

Fortunately some relatively simple steps can be taken to prevent this from happening. A "buy-sell" agreement can be put in place, which specifies who can buy each partner's share of the business, what events will trigger this (eg the death of the partner) and what price will be paid for it.

In addition, life insurance can be taken out to provide the remaining partner with the lump sum necessary to buy back the shares. "Identifying a need for it is the key thing, and the solution is cheap and cheerful," he says.

As with most things in business, the key is to put a plan in place as early as possible, rather than waiting until the unthinkable happens.