You’ve most likely dedicated significant time and energy to visioning your business, executing your vision, and even writing up a business plan for the growth of your business. Yet far fewer business owners put the same amount of effort into planning for their company’s continued success following their retirement, death, or incapacity.
Not planning for the future of your business after you retire, become incapacitated, or die, could have potentially disastrous consequences for you, your clients/customers, and your family if (and when) something should happen to you. Indeed, creating a comprehensive succession plan (as part of your overall estate plan) is every bit as critical as any other planning you do for your business, if not more so.
Whether you exit your business with a sale, your incapacity, or as a result of your death, there will come a time when it’s time to go. To ensure your company continues to prosper once you are no longer in the picture, here are three tips for developing a sound business succession plan.
1. Begin with the end in mind: One of the biggest mistakes business owners make is putting off succession planning until they are nearing retirement. Instead, a comprehensive succession plan should be a key component of your business planning process from the very beginning. The decision about how you plan to exit will impact nearly everything about your business, from your revenue model to the type of business entity you choose. And if you wait to consider these matters, it could very likely be too late to optimize your plan to set things up for the kind of exit you ultimately want to make.
Yet if you started your business without considering the end, it’s not too late. They say the best time to plant a tree is 20 years ago, and the second-best time is now. It’s the same with succession planning. If you haven’t started planning yet, now is the time.
Begin by asking yourself: How would your business continue if you couldn’t be there to run it? What will happen to your team, clients, and family if your business suddenly stops because something unexpected happens to you? Do you want your business to continue beyond your leadership? If so, contact us to start planning for that now.
2. Clarify what you already have: Like any other business strategy, a succession plan should be formally documented. By documenting your plan, you can be certain that everyone impacted is aware of your goals for succession, while also providing a clear roadmap for your business’ future success.
Oftentimes, business succession is documented by default, rather than by intention. You might have an operating agreement for your business with boilerplate provisions for what happens in the event of your death or incapacity, but you may not have even read those provisions or discussed them with a lawyer to truly understand their impact. If that’s the case, now is the time to review what you have, and consider whether you want to make any changes.
Understanding what you already have in place (or what our state’s default plan would be for your business, if you have nothing in place yet) is a key first step to ensuring the smooth transition of your company. Then, once you are clear what you really do want to happen, you must document your plan in your business’ operating agreements.
Documenting your plan in a formal legal agreement is particularly important when considering future ownership of your business. By including specific terms for transfer of ownership, you can be confident that the future owner(s) clearly understands the plan’s expectations, scope, and processes.
In order to ensure all of your legal bases are covered and your family is well-protected from future liabilities and conflicts, enlist our assistance to create and maintain a comprehensive succession plan.
3. Include key stakeholders in your process: Handing over control of your business to another person can lead to conflict and squabbles, especially if you have children, some of whom are part of the family business and others who are not. To this end, you should open up a dialogue with those directly affected by succession as early as possible.
If you own a partnership, all decisions about your plan should be made jointly. You may also want to consider including your company’s leadership team in the decision-making. Allowing key personnel to provide input and feedback can help ensure the leadership transition is as smooth and conflict-free as possible.
If any members of your leadership team don’t agree with your plan or aren’t interested in continuing on without you, you might offer them options, such as a generous severance package, to honor their tenure. Doing so can create goodwill and foster an employee-friendly reputation for your business.
Nearly all succession plans include complex financial, legal, and tax decisions, so you should consult with a trusted advisor like a Family Business Lawyer®, who can offer you professional advice about how to proceed. A Family Business Lawyer® has the experience and expertise needed to help you navigate all of the legal, financial, tax, and insurance issues related to succession planning.
Plus, if you own a family business, it can be challenging to decide which of your children, if any, should assume control. We can serve as an unbiased advisor to help you to make an objective decision when choosing your successor, without being swayed by emotion.
Contact a Family Business Lawyer® today to ensure that the business you worked so hard to build will continue to thrive even when you’re no longer at the helm.