Business Succession Planning
One of the most important concerns facing business owners today is how to effectively transfer the business to the next generation of family, a key employee or a new owner. Business succession planning seeks to create a plan to manage all the aspects of the transfer, making sure the transition is smooth and non-disruptive to the business. In family businesses, one of the most important aspects of business succession planning is making sure communication lines are open and the relationships are appropriately addressed. Unfortunately, too often succession planning is not addressed early enough or neglected completely resulting in significant complications at the time of the desired transfer. Succession planning should be considered well before the anticipated exit time so that proper planning and structure can be put into place. Below are 10 important issues to consider when think about business succession planning.
- Plan Early. The time to begin business succession planning is well before your anticipated transition. Getting started sooner will ensure your goals and objectives can be met.
- Commit the Time and Resources. This process will take time and resources. If you are not willing to commit to the process, your result will suffer. Therefore, invest the appropriate time and resources at the beginning to ensure a successful result.
- Engage an Outside Adviser. There are many difficult issues you will confront while planning your business succession. Finding a good adviser (i.e., an attorney or accountant that has experience in this area) that can guide you through the process is invaluable. The right adviser will ease your mind and create the optimum plan to achieve your goals.
- Invest in the People. People are your strongest assets. Make sure you have the right talent in place. If you don’t, find the right talent — do not settle for second best.
- Management v. Ownership. Perhaps you think these go hand-in-hand, but they can easily and understandably be separated. Often, when transitioning a business, splitting these roles is vital to the ongoing success of the enterprise. Think about the skills of the people involved and then decided how to deal with management and ownership.
- Understand Relationships. Businesses are made up of people. Understand that decisions you make on transition matters will have ripple effects on many of the key people in the business. Make sure you understand how the unintended consequences of the decisions you make may effect the key people in the organization.
- Look at all Options. In devising your succession plan, you will be faced with numerous choices and decisions. Make sure you look at all possible options before making a decision. While this may seem overwhelming, you only get to transition your business once, so make sure you do it right.
- Tax Strategy. This is one of the most important and tricky areas to address. Make sure you have a well qualified tax adviser available to assist. The consequences can be extreme, so proper planning in this area is vital.
- Integrate with Estate Plan. For many business owners, the business represents a significant part of their net worth. Therefore, it is very important to integrate your estate planning with your business succession planning to achieve a comprehensive result.
- Plan for the Unexpected. The only thing that is certain in planning for the future is that things will happen that you did not plan for. Unforeseen circumstances may alter your plan, so make sure you consider alternative strategies and make sure you have flexibility in your plan to account for the unexpected.
Although these tips will get you started down the road to effective business succession planning, the list is not exhaustive. There are many other issues that need to be addressed as you build your succession plan. At a high level, the most important thing to keep in mind is to build a solid strategy and stick to that strategy as you move through the transition. You don’t have to tackle this project alone — engage the right resources to help you through this milestone.