No Business Succession Plan? Why You Need One
When you launched your business, making a plan for ending your role as its founder and leader was probably not on your mind. You knew that your tenure would eventually end, but you figured you had a long time to plan for that eventuality.
That may well be true. But if you want your business to survive you, or you’re planning to sell it when you retire, it’s as important to prepare for that day as it was to create your company’s first business plan.
Succession planning is a very specialized kind of planning, one that you don’t want to tackle on your own, whether you’re planning to sell or hand over the reins to someone else. Your financial advisor and legal counsel should be involved at the very least. And they should be involved soon. You’ll need an in-depth, ongoing valuation of your company, and a good understanding of all of the legal and tax ramifications.
There are grim statistics about the survival of companies when there’s new management. And a hastily-arranged sale will not be as lucrative for your heirs as one that at least has a strategy ready to go ahead of time. Having a good succession plan in place will make either situation more likely to work in your favor.
There’s no standard blueprint for succession. Some of it depends on your business structure, some on your goals for the company’s future. But keep these things in mind as you get ready to develop your plan:
- Know how you want the last chapter to read. Be very clear on your intentions for the company upon your exit. Will you set up an ownership transfer? An outright sale, or a structured buyout?
- Set goals accordingly. What will it take to get to a point where you feel comfortable stepping down? For example, if you’re planning to sell, you will of course want the business to have months or years of optimal financial health. Passing the torch to a family member or business associate, on the other hand, will require a lot of grooming.
- Create a realistic timeline. When do you want this to happen? Unless your departure is imminent, you don’t have to put together a firm calendar. But know in advance how much time the process will take when you’re ready.
- Protect your family’s future. You want to be sure that your family will be secure when you’re no longer in charge of your business – whether that’s a result of disability, retirement, or death. Do you have adequate retirement savings? Enough life insurance? Will your family still have some stake in the company?
This is one reason why you should start working on your succession plan early. You worked hard to build your company, and its success should sustain you and your family after you’ve left.