What is Succession Planning?
You may wonder what is meant by the term “succession planning.” It is the entire process of transitioning your business operation to a new owner, new management team or the next generation of your family. Much more than a mere financial arrangement, succession planning is a roadmap that details the process for transferring ownership. It includes people management, team development, project coordination, business design, professional growth, legal arrangements and estate planning.
Why Create a Succession Plan?
There are several reasons to engage in succession planning. In your absence, a plan can prevent fighting among leaders in your business and the subsequent loss of valuable employees and potential income for your family. Even if you have an “heir apparent,” that person will be flying by the seat of their pants without a succession plan in which they have been an integral part. If you co-own a business and do not have a plan and an agreement among co-owners, you and your spouse may not be entitled to on-going benefits which the company paid while you were working, such as health insurance. Additionally, income or capital to which you or your heirs are entitled may be difficult to extract from the business without an agreed upon plan.
A thorough succession plan will provide security for you and your family, improve clarity of vision for the future of your business and promote the development of the company’s future leaders.
When Should I Begin?
You might be uncertain when to start planning for the next step in your business. Planning for your retirement is best to begin about five years in advance. Planning for your incapacity or death can never begin too soon, since no one can accurately predict when either might happen.
How Do I Begin?
Begin your succession planning by thinking about what you would want to happen in the event of the following: 1) your retirement, 2) your incapacity, and 3) your untimely death. What would you or your family need financially? Who would be capable of running your business, or who might be interested in buying it? Is that person (or persons) already an employee, or are they an outsider such as a competitor, vendor, client or customer? Would your employees be interested in an employee stock ownership plan (ESOP) so that they would eventually own the company? If you have co-owners, what would you want to happen if they retired, became incapacitated or died while still working with the company? Would you want to buy them out or continue co-owning the business with their spouse or children?
Once you have an idea of what you would want to happen, the next step is to discuss your ideas with the professionals already working with you or your business. These include your financial advisor, CPA, business advisor, business attorney and estate planning attorney. With their guidance, rough out your goals in each of the three scenarios and develop different ways you might achieve those goals. They can then help you set a time line for the necessary actionable steps necessary and decide who will be responsible for each step.
Worth the Investment
The process of succession planning is an investment of time and resources, but it is well worth the investment for your and your family’s security and peace of mind.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.