Tips for Creating a Business Succession Plan
You’ve put countless hours of hard work into building your successful business, but have you put any time into considering who will run your business once you retire? If you’re like the majority of small business owners, you probably don’t have a succession plan in place, which can be detrimental in the future to the business you’ve worked so hard to build. By following some tips for creating a business succession plan, you can help ensure your company stays prosperous after you are no longer running it.
Seven Tips for Creating a Business Succession Plan
Many people put off creating business succession plans because retirement seems so far away and running the business consumes all of their time. However, while retirement might be years or even decades away, depending on your age and circumstances, you can’t be sure what the future holds. Should you become seriously ill or suffer a disabling injury or even die unexpectedly, having a solid plan in place before such a catastrophic event occurs will not only protect your business, but also your family’s financial future.
Here are seven basic tips for creating a business succession plan:
Begin Planning as Soon as Possible
Starting succession planning as early as possible will give you time to identify and properly train your successor. Ten or even 15 years before you plan to retire is not too soon to begin making your exit plans. If you are just starting your business, you might even consider building your exit strategy into your business plan. The more time you have to plan for the future of your small business and educate your successor, the better it will be for the company’s continuing success.
Consider Family Members as Successors
Small business owners often assume that one of their heirs or another close family member will take over their company. However, your children may not be interested in running the business, or you may not have a family member that you believe is suitable to own and run it. Conversely, you may have more than one child who would like to run the company. Keep the best interests of the company in mind when determining a successor among family members. In some cases it may make sense to divide ownership among children, while appointing the most capable among them to have responsibility for running the company. Because of the sensitivity in deciding among children and the potential for conflict, it can be wise to hire an impartial business consultant who will focus on the company’s interests to assist with this decision-making process.
Also keep in mind the importance of involving your family in the succession planning process. When you are transparent with your family in your planning and allow them to express their thoughts related to the business, it can serve to reduce surprises and disputes later on.
Identify Other Possible Successors
If you don’t have an appropriate family member to pass your business to, you may have a key or long-time employee who may wish to buy it. Sometimes an employee who has worked closely with a business and deeply understands its operations and its customer base is a more ideal successor than a family member. Selling to an outside person or entity is another option; or if you own the business with another person, you may be able to sell your portion to the co-owner.
Develop a Comprehensive Training Program
Once you’ve selected a successor, set him or her up for success by putting a formal plan in place for training them. Expose your successor to every area of your business and involve them in decision-making processes whenever possible. Identify holes in their knowledge that you can help fill through your own training or outside training, if necessary. Don’t micromanage—as your successor gains more knowledge, allow them to actively begin running some areas of the business. Also, be sure your company’s operating procedures are well documented for your successor’s reference and future use.
Conduct a Business Valuation
Even if you aren’t planning to sell your business, it is still beneficial to put an economic value on it. Knowing what your business is worth can help you plan for retirement and, should the unexpected happen, it can help your family understand the company’s worth should they have to sell it. Stay up-to-date by having occasional business valuations done.
Document Your Succession Plan
Be sure to put your plan in writing. Carefully detail the following in a written document:
- An identified successor or list of possible successors
- A timeline for your succession that includes your exit date
- The up-to-date valuation of your business
- The legal process through which your business will be transferred or sold, including how it will be funded
- All standard operating procedures and documentation related to the business.
Review and Regularly Update Your Plan
Once you’ve taken all the steps to identify possible successors, strategically thought through the exit planning process and carefully documented everything, be sure to annually review and update your plan. Many things can happen in the future, and these changes should be reflected in your written succession plan. The key employee you’ve identified as a successor may leave. Or the adult child you thought would take over may lose interest. Keep your plan current.
Poor Succession Planning Examples Are Not Unusual
Succession planning can be very complicated, and when it isn’t done right, businesses can fail. There are numerous succession planning examples in the business world where things didn’t go well when a new owner took over a company. Family conflicts, a lack of proper training, a new owner’s differing vision about how the company should be run, and a host of other issues can create problems for small businesses. Getting the assistance of a lawyer that specializes in business succession planning can put you on the road to a successful exit strategy.
Contact an Experienced Business Attorney for Assistance
Lusk Law, LLC has years of experience helping small business owners with their succession planning needs. Contact us today for assistance by calling us at (443) 535-9715. Advocates for Life’s Obstacles and Opportunities.
Our Latest Posts
- Maryland has announced significant changes to the state’s Landlord/Tenant law, …
- How to establish a corporate veil is an essential issue …
- Our Maryland business lawyer can help protect you against unfair …
- What to know before hiring a contractor can be the …
- It is good to know how to review a commercial …
- If you have a short-term need for extra staffing, you …
- As the Covid-19 pandemic continues, changes to Maryland eviction rules …
- The types of business contracts you’ll need depend on your …
- What should be included in a severance package depends on …
- You have a spectacular idea for a business, but for …
Changes to Maryland Landlord/Tenant Law Announced
Maryland has announced significant changes to the state’s Landlord/Tenant law, and all landlords need to become familiar with these modifications. As of October 1, 2021, changes will be implemented that…