- Have you considered your business succession plan recently? Or at all?
- Planning early is key.
- Here are 4 easy steps to guide you on the development of a well-crafted business succession plan.
As a business owner, what would happen if you unexpectedly didn’t show up to work tomorrow? What if you never came back?
You may have a clear vision for how you’d like your business to run and your family to be provided for in your absence. However, that vision provides no benefit to your loved ones and successors if it remains only “between your ears.”
Without a clearly communicated plan, those around you may lack the legal authority to make timely decisions to keep the business operating. The uncertainty during a time of crisis may negatively impact your family, employees, clients and investors, putting the future of the business at risk.
A well-thought-out plan, communicated in advance, empowers those around you with the right information to make the transition as smooth as possible. It can help prepare your business for the future while providing financial security for your family.
Despite the positive impact of strong succession planning, nearly two-thirds of privately owned businesses in the U.S. lack a written plan. Now’s the time to make sure your business is not one of them. Read on to learn what succession planning is, what goes into a well-crafted plan and the steps necessary to start creating a succession plan for your business.
What is a succession plan?
A succession plan is a written set of instructions that ensures the orderly transition of duties and responsibilities to continue running the business during your unplanned absence or untimely departure. Simply put, it is a step-by-step guide that those left behind can follow in a time of crisis.
A succession plan outlines your vision for how the business would operate in your absence. It also ensures that key stakeholders can act by outlining their new roles, responsibilities and decision-making authority. It should provide the legal authority to access secure information and have decision-making conversations with important contacts like your banker, suppliers, customers and professional advisors.
A succession plan may include references to shareholder or operating agreements that govern the buyout of ownership interest.
When should you create a succession plan?
Now and not during a time of crisis. Planning early, and revisiting the plan often, is key to a smooth transition. Addressing succession planning early allows more time to think things through and provides time to change your mind. It also creates an opportunity for coordination between your overall estate plan to ensure they are in sync.
Where to start
1. Begin with self-reflection.
Begin the process of building your succession plan by asking yourself the following questions:
- Who is best qualified to take my place if I’m not here?
- Who would need to be informed and in what order?
- Who would my ownership transition to?
- Do my current documents reflect what I want to see happen?
- Are there any debts or obligations that would come due immediately upon my death?
- Can my partners afford to buy my family out if I pass away?
The answer to these questions will begin to paint a picture of what your succession plan should look like and provide guidance along the way.
2. Work with an advisor to architect your plan.
The best succession plans are concise and actionable. They may be only two to three pages, depending on the situation. Consulting a trusted advisor early can help ensure your plan truly reflects your wishes, communicates your intentions clearly and can be executed smoothly.
3. Create and communicate the plan.
Once you’ve laid out your vision, ensure it’s in writing and communicated to key stakeholders. Depending on the structure and nature of your business, you may need to vote to approve the plan at a board of directors meeting.
Not everyone in the organization needs to know the plan in detail, though you may consider reassuring employees, investors and lenders that you have a plan and that it is current.
4. Change your mind when you need to.
Succession planning is ongoing. As your business grows or priorities change, so should your succession plan.
Taking succession planning for granted can be costly and jeopardize your company’s future. There are many public examples of this happening. Investing a few hours with the right advisors can alleviate much of the risk and provide peace of mind.