As a business owner, your career relies on thinking three steps ahead. In the interest of proactive planning, you’ll want to prepare a business succession plan for your eventual retirement or in the case of any unforeseen, life-threatening accidents.
While some business owners dread even the thought of handing their life’s work off to the second-in-command, it’s your sole responsibility to plan for what happens to your company when you’re no longer the presiding owner. Corporations are the only business entities that are exempt from formulating a business succession plan, as stockholders are technically granted ownership.
It’s a good practice to start planning early for unexpected shifts in leadership or early retirement. Planning your succession plan is key to ensuring business continuity even when you aren’t a part of the financial picture.
To get started, consult with a knowledgeable law firm like wh Law to help you structure a succession plan that aligns with your company’s projected direction. Below are important considerations for your business succession plan that you won’t want to overlook.
Evaluate the potential of your current leadership structure
Assess the capabilities of your current management team to scope out any future leaders in-the-making. This is a great starting point in creating a successful business succession plan for your company.
By testing the individuals who currently occupy management positions in your company, you’ll be able to evaluate the managers who are best-equipped to build a team, oversee production, and build the business in accordance with shifting trends and market demands.
For many companies, the ideal future leader is an employee who’s currently working in the organization and has already been exposed to your company’s policies and procedures. These managers will only require some additional training and mentoring to prepare them for the role.
What are the ideal characteristics of your future successor?
Your personal strengths and unique management style likely played a huge role in the success of your business. While you won’t be able to produce an exact clone of yourself exact, you may want to consider recruiting a replacement whose management style and priorities are compatible with yours.
Although, you won’t want to burden incoming leadership with the responsibility of filling your big shoes. Many family businesses nosedive into the financial trenches when trying to model their future successor into a clone of the outgoing leadership. Nine times out of 10, this approach will wind up being a bad idea.
While it can be tempting to try and have an exact replica running the business, it’s important to understand that your company’s leadership will need a position-holder who’s willing to adapt to changing times. It might even be in the company’s best interest to introduce a leader with a fresh management strategy The best business succession plan is will try to foresee the future challenges of the business and will dedicate the necessary time and resources to finding the best leadership fit.
Your family
Financial struggles are known to cause rifts even within the most tight-knit family units. For any family-run or owned company, this is always a looming threat for the business.
Inheriting the business comes with its own fair share of struggle but holds the potential to earn a very generous living. With that in mind, family considerations should be the foundation of any well-thought-out business succession plan. A plan that overlooks the needs of your family may stir contention A good way to avoid awkward family dinners is to maintain a strong sense of family in the company and strive for equal treatment and compensation for all family members involved while drafting the succession plan and running the business’s day-to-day operations.
How does the succession plan align with company goals?
When formulating your business succession plan, it’s important to understand how the succession plans align with the overall company vision and both its long-term and short-term goals.
Many businesses, especially small businesses, take succession matters lightly. Business succession plans don’t just address who takes over in the case of retirement or unforeseen injuries or death, it prepares your business for any worst-case-scenario, so you’re equipped to handle any curve ball thrown in the company’s direction.
It’s important to first consider the core values and long-term plans for your business before selecting an heir or heiress for your company. Selecting an individual who is well-capable of executing company projects and rebrands can go a long way in achieving long-term company success.
Problems may arise in the succession process
Problems may arise as you begin to draft your business succession plan. These roadblocks can occur at various different stages of the process.
If the company is currently under multiple tiers of ownership, chances are one or more of the current owners may feel dissatisfied with the selection process. Family businesses are more susceptible to feuds when heirs feel unfairly passed over. Any lingering frustrations or resentment can put the company in peril, especially in the early stages of succession planning.
A sure-fire way to reduce profits and incite chaos within the business is to leave a business and its staff to cope with the death of a leader without any plans of a replacement. Therefore, it’s paramount to seek advice from a reputable attorney when creating a comprehensive business succession plan, so your company isn’t left in disarray following a devastating incident.
Tax considerations
Transfer of ownership involves a fair-share of undesirable tax implications. When ownership changes, a business may be deemed large enough to qualify for heftier tax requirements. During business succession planning, some of the most utilized tax vehicles are family-limited liability companies and partnerships.
These succession techniques organize the business assets under another family-run business instead of taxable trust funds. The asset transfer through these types of funds may be tax-deductible if they are labeled as gifts. These transfers also differ from the typical business transfer forms, as these owners aren’t allowed to control any vital business operations.
Final Thoughts
Succession plans are vital for any company, regardless of its management or leadership models. An effective business succession plan guarantees the continuity of the profits, steady service or product quality, and consistencies in unbeatable customer service
The consequences of not implementing a business succession plan can be grave in unexpected occurrences like death, which is why you should consult with a knowledgeable and reputable attorney to develop a tax-efficient and comprehensive succession plan. Study-up on how to start the business succession plan for a better understanding of how to initialize and run your succession process.
