How To Create a Business Succession Plan
When you’re building a business, you might be focused on the here and now. But if you really want to succeed over time and set up a long-term business structure, you must imagine how the business will survive even after you’re long gone. Click through to learn how you can think about the longevity and future of your business while working on it in the present.
There is an unbelievable number of companies across a wide array of industries, which may lead you to believe that the creation of a succession plan must be a unique and one-off process. For instance, family businesses in particular carry distinctive cultures and reflect idiosyncratic histories in ways that might be challenging for outsiders to relate to let alone understand.
But despite all the differences that set companies apart from one another, the process of compiling a business succession plan is remarkably uniform, no matter the specifics of your business. Although a good plan must be customized to each business and its needs, there are many standard principles that apply to all businesses across the board.
The value of having a business succession plan in place is universally recognized by all company owners. Plans such as these serve the purpose of facilitating leadership continuity and preparing a framework, especially since changes can occur rather quickly. Firms are advised to plan anywhere from three to five years ahead of any anticipated changes in ownership. It is equally important that they review their plans regularly.
The meat of the plan
When putting together a business succession plan, there are certain general considerations that should be thought about before moving into the more specific aspects of the plan. For instance, successful business owners are attuned to fluid environments, and they understand that key people will eventually retire, meaning new strategies and directions will subsequently require various levels of competency.
The succession plan must establish a collective vision and an attainable set of goals. With this in mind, remember that the plan is supposed to be where roles, skills and experience levels are not only defined but also aligned, while also addressing gaps that need to be filled.
It’s important to think about all possibilities and be honest with yourself during this process. For instance, should a family continue to own and manage the firm, or is it time to enlist the guidance of professionals outside the family tree? If family members are retiring soon, what are their objectives and cash flow requirements? What are the personal and career aspirations of the next generation of employees?
These are all inquiries that point to the foundation of the business, and once they have been addressed, it’s time for the authors of the business succession plan to turn to the more difficult questions. Some important plan components include the following:
- Build a succession timeline, including dates where feasible.
- Compile a list of succession candidates, noting strengths as well as weaknesses.
- Assemble all relevant documents, including procedures, handbooks and employee training manuals.
- Decide on the method for valuing the operation in addition to any and all funding options.
- Document dispute resolution procedures in writing.
- Review any tax implications, both for the owner and for the business itself, in the context of what may arise from the sale or transfer of the company.
- If partners are involved, draft a buy-and-sell agreement that will become an official part of the plan so that the process of directing how everyone’s shares will be distributed is detailed and defined in the plan itself.
- Prepare funding mechanisms, such as life insurance or key person insurance.
- Craft ways to develop internal talent.
- Forecast the firm’s future needs, focusing on market trends, compensation and retirement schedules.
- Set out individual development plans along with necessary training or coaching protocols.
- With your attorney’s help, prepare or update all governing documents. These may include partnership or operating agreements, articles of incorporation, and written instructions regarding disputes, terminations for removal, resignations, and death or disability contingencies.
- Arrange a procedure for delegating authority to successors.
- Consider how to retain employees by way of equitable compensation programs.
- Bring in external advisers if warranted to promote objectivity.
Ready to implement
Once all the aforementioned measures have been taken and the processes are officially documented, the moment has come to roll out concrete action plans. Continue to monitor and calibrate the business succession plan along the way.
As the last stages fall into place, you may be ready to circulate the plan amongst fellow employees in an effort to collect critical feedback. The instrument should be dynamic, meaning it must be constructed to adapt and adjust with the times. Open communication between family members, stakeholders and employees will lead to a far more comprehensive blueprint.
If the timing of the transfer can take place during the owner’s lifetime, it may benefit all parties to maintain ongoing consultations. It might also lessen any prospects for a discounted sale. Linking the succession plan to an overall strategic plan will provide your business with a clear map for continuity into the future.
Many moving parts play a collective role in the production of a consummate business succession plan. Tap into the expertise of your attorneys, accountants and internal management team to achieve concerted results that set up your business for unwavering success moving forward.