Why Is a Business Succession Plan So Important?

For many entrepreneurs, the present day is challenging enough. Starting and managing the day-to-day affairs of a business is a massive effort that can leave even the cleverest owners with little energy left to think about tomorrow. But every small business, sooner or later, will face the reality that its leader won’t be around forever. Planning for what happens after a founder moves on can mean the difference between success or failure for the business.

The Second Generation—and Beyond

The statistics are inarguable: Family businesses are an enormous part of the American economic landscape. Research has shown that family businesses account for 64 percent of U.S. gross domestic product, generate 62 percent of the country’s employment, and account for 78 percent of all new job creation. But research has also shown that less than one-third of family businesses survive the transition from first- to second-generation ownership. Another 50 percent don’t survive the transition from second to third generation. And about half of current owners aren’t even sure that their children would be able to successfully run their companies.

For some entrepreneurs, that’s not an issue; selling off all of your interest in a company to outside investors is certainly one valid way to transition ownership. But if part of your motivation for starting a business was to provide a legacy and security for your family’s and employees’ future, it makes sense to have an intentional business succession plan in place long before it becomes necessary.

Taking the First Steps

What is the best way to put your plan in place? There is no one solution. Your plan will depend on your individual company’s makeup and needs—and the advice of a qualified expert can help you get started. Most companies will want to address these concerns:

Naming your successor

Many experts agree that succession planning should begin 15 years before you intend to retire, giving you ample time to mentor the future leader as he or she learns the ropes. Who that successor should be is, again, different in every situation. A family member may not be the right choice, especially if those in the second generation have shown no real interest in or passion for the business. Longtime, trusted employees who are familiar with the company’s operations and goals often make excellent candidates for succession.

Making a plan

Current owners will want to set down how they want to begin grooming their successors, outlining benchmarks and goals along the way. Making sure the successor has enough exposure to gain expertise in every aspect of the business is crucial. Establish a timetable for what aspects the successor will take over, and when. Make sure that company-wide communication remains strong throughout the process; your organization needs to know unambiguously who is in charge of what at all times.

Expect the unexpected

Having a plan in place is a plus, but life doesn’t always go according to plan. In your succession plan, you need to include a map for what will happen if you should die or suffer a disability. If you don’t have a plan in place, difficult decisions may have to be made by family members, who will already be stressed and burdened by your loss. This is one area where expert advice would be especially useful, to help envision all the contingencies and complications that might arise.

Creating a Business Succession Plan: Don’t Go It Alone

Above all, it’s important to include key stakeholders in your business succession planning, including family members and company board members. And one member of your planning team should definitely be a business attorney, who can help you with the legal framework of succession planning. An attorney can also guide you to the services of an accountant, a wealth management advisor, or someone with expertise in tax and probate issues.

Attorney Rebekah Damen Lusk, as a small-business owner herself and an experienced Maryland business law attorney, has helped entrepreneurs in Maryland meet the challenges of running a small business—and ensure its successful future. Contact the law firm of Lusk Law LLC to learn how they can assist you.

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