4 Things You Need to Know About Business Succession Planning
As the owner of a small business, you’ve probably spent plenty of time working with your business plan, but have you dedicated the same amount of time to plan for the continued success of your business after you retire? If you were to suddenly die or become incapacitated, what would happen?
If you’re like the majority of business owners, the answer would probably be no. However, just like it’s vital to have an effective estate plan you need to have a business succession plan to ensure that your company will survive and thrive without you.
The good news is that succession planning even helps your business while you are still alive and healthy. It will even free up a lot of your time once it’s done. This will allow you to enjoy more of life, now!
Here are four key recommendations to get you started.
Instead of putting it off until you’re near retirement, succession planning should be a fundamental part of your business strategy. Indeed, a comprehensive succession plan shouldn’t be considered an end at all, it’s actually the beginning of your company’s next phase. It takes an average of five years from start to finish to execute a succession plan, so you will need to get a jump on the process to ensure a transition of leadership goes smoothly, and your business, clients, and team have enough time to adjust. Not to mention, things don’t always unfold in the way we imagined, and your untimely death, incapacity, or decision to pursue another opportunity could jeopardize the company’s survival. Effective succession planning, like estate planning, creates stability and security, ensuring your business will continue to grow and serve, no matter what.
Put it in writing
Just like any other element of business strategy, your succession plan should be formally documented, well-structured, and legally binding. By writing your plan as a legal document, you won’t only ensure that everyone is aware of your objectives and goals for succession, you’ll create a roadmap for the company’s future success. Such thorough documentation is especially vital when it comes to ownership transfers. By carefully laying out the terms and conditions surrounding the transfer of ownership, you can be confident that a new owner clearly understands the plan’s scope, expectations, and mandate.
Include key stakeholders in the process
Handing over the reins to your business to someone else is bound to make some other people frustrated. Therefore, it is a good idea to open up a dialogue with all of the stakeholders affected by the succession. Obviously, if there are partners involved, succession should be a joint decision. Beyond that, you may wish to consider including your company’s leadership team in the decision-making. If your top-level staff isn’t considered or allowed input, the succession is likely to be mired in conflict, with little chance for success.
While the final decisions regarding succession are up to you, if any of your top staff don’t agree with your plan or simply aren’t interested in continuing on without your leadership, you may offer them options for leaving the company that honors their tenure. Whether this is offering to buy back their shares or giving them some form of severance, the goal should be to show everyone involved that you respect their contribution to the business and want them to enjoy continued success, even if it’s not with your company.
Work with an advisor
Since succession will undoubtedly have a major impact on your business, potentially involving reorganization, changing the legal entity, and/or even selling the business, it’s important to consult with a trusted advisor, who can offer you professional advice about how to best proceed.
Since nearly every succession plan will entail detailed legal and financial actions, you should select an advisor who has expertise in those fields and can bring in a whole succession team (when appropriate) to work with you. Not to mention, if it’s a family business, it can be extremely difficult for you to choose which of your children, if any, should take the helm.
Having an unbiased advisor who’s outside of the business—and family—can allow you to objectively base your decision on what’s best for the business and not be swayed by emotion. As your Access Lawyer, we can be that trusted advisor, guiding you step-by-step through the entire process of developing and implementing a comprehensive business succession plan.
We also have the expertise and experience to help you navigate all of the legal, financial, tax, and insurance complexities surrounding succession planning. Contact us today to ensure that the business legacy you worked so hard to build will continue to thrive even when you’re no longer running the show.