Business Succession Planning
Business succession is a major dilemma that can cause a small family business to go under in the event that the owner dies. The problem is that without the vision or expertise of the owner, many businesses simply fail. While death is one issue that needs to be planned for accordingly, so is retirement and disability.
Business succession planning is simply the process of determining how you are going to transfer your business ownership and transition out of a business management role, while maximizing your personal financial security.
Unlike corporations, small businesses and partnerships without solid succession plans often fail when the owner or a senior-level partner retires, becomes incapacitated or dies. Problems also can arise when partners no longer get along and decide to part ways.
At some stage you will decide to leave your business; perhaps you have decided to sell, retire or do something else. Regardless of the reason, having a succession (or exit) plan in place will help you to smoothly transition out of your business.
Proper succession planning is essential for family businesses in particular, which will have to either identify family members who are qualified for leadership positions or consider other contingencies beyond the family. Planning early, basing decisions solely on business needs and revisiting the plan as conditions change are the keys to a successful hand-off.
You can start succession planning years ahead of time; having a plan can be useful if there is an unexpected event, such as illness or death. Without a plan the future of your business can be at stake. Early planning also helps you to maximize the value of your business.
Business succession planning should be a priority for every family business.
Sooner or later, everyone wants to retire. But if you own a family business, retirement isn’t just a matter of deciding not to go into the office any more. Besides ensuring that you have enough money to retire on, the whole question of what happens to the business becomes paramount. Who’s going to manage the business when you no longer work the business? How will ownership be transferred? If succession is not an option the business will need to be wound up or sold.
If the business will be carried on by relatives then it is important to have a business succession plan in place to manage these issues, setting up a smooth transition between you and the future owners of your business. With family businesses, succession planning can be especially complicated because of the relationships and emotions involved – and because most people are not that comfortable discussing topics such as aging, death, and their financial affairs.
Best Practices for Achieving Succession Success
- Respect the succession matrix
- Grow family
- Develop and communicate your exit strategy
- Create a performance culture
- Make no succession assumptions
- Be the beacon of optimism