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4 Things You Need to Know About Business Succession Planning

Posted by Scott Lynett, Esq. | Apr 20, 2022 | 0 Comments

As a small business owner, you've likely spent plenty of time working with your business plan. But, there will be a time when you step away from your business, whether you chose the timing or not. Below, you'll read four recommended steps to prepare your business for succession. If you were to suddenly die or become incapacitated, what would happen to your business?

If you're like most business owners, the answer is no. However, just like it's vital to have an effective estate plan to provide for your family should you no longer be able to, it's just as crucial to develop a business succession plan to ensure your company will survive and thrive if you're no longer able to be there.

The good news is that succession planning even helps your business thrive while you're alive and healthy. What's more, it will likely free up a lot of your time once it's done, allowing you to enjoy more of life now!

Here are four key recommendations to get you started.

Start early

Rather than putting it off until you're near retirement, succession planning should be a fundamental part of your business strategy from the start. Indeed, a comprehensive succession plan shouldn't be considered an end at all—it's simply the beginning of your company's next phase.

It takes an average of five years from start to finish to execute a succession plan, so you'll need to get a jump on the process in order to ensure a transition of leadership goes smoothly, and your business, clients, and team have enough time to adjust.

Not to mention, things don't always unfold in the way we imagined, and your untimely death, incapacity, or decision to pursue another opportunity could jeopardize the company's survival. Effective succession planning, like estate planning, creates stability and security, ensuring your business will continue to grow and serve, no matter what.

Put it in writing

Just like any other element of business strategy, your succession plan should be formally documented, well-structured, and legally binding.

By putting the plan in writing and having it drafted as a legal document (or most likely, a set of legal documents), you'll not only ensure that everyone is aware of your objectives and goals for succession, you'll create a roadmap for the company's future success.

Such thorough documentation is especially vital when it comes to ownership transfers. By carefully laying out the terms and conditions surrounding the transfer of ownership, you can be confident that a new owner—and everyone else on your team—clearly understands the plan's scope, expectations, and mandate.

As your Creative Business Lawyer®, we can help you prepare a comprehensive succession plan that will shield your business from risks and conflict, while sustaining your legacy.

Include key stakeholders in the process

Handing over the reins of your business to someone else is bound to ruffle some feathers, especially if it's a family business with multiple children involved. Given that, it's a good idea to open up a dialogue with all of the stakeholders affected by succession.

Obviously, if there are partners involved, succession should be a joint decision. But beyond that, you may want to consider including your company's leadership team in the decision-making. If your top-level staff aren't considered or allowed input, the succession is likely to be mired in conflict, with little chance for success.

While the final decisions regarding succession are up to you, if any of your top staff don't agree with your plan or simply aren't interested in continuing on without you, you might offer them options for leaving the company that honor their tenure.

Whether this is offering to buy back their shares or giving them some form of severance, the goal should be to show everyone involved that you respect their contribution to the business and want them to enjoy continued success, even if it's not with your company.

Work with an advisor

Because succession will undoubtedly have a major impact on your business, potentially involving reorganization, changing the legal entity, and/or even selling the business, it's important to consult with a trusted advisor, who can offer you professional advice about how to best proceed.

Since nearly every succession plan will entail detailed legal and financial actions, you should select an advisor who has expertise in those fields and can bring in a whole succession team (when appropriate) to work with you. Not to mention, if it's a family business, it can be extremely difficult for you to choose which of your children, if any, should take the helm.

Having an unbiased advisor who's outside of the business—and family—can allow you to

objectively base your decision on what's best for the business and not be swayed by emotion. As your Creative Business Lawyer®, we can be that trusted advisor, guiding you step-by-step through the entire process of developing and implementing a comprehensive business succession plan.

We also have the expertise and experience to help you navigate all of the legal, financial, tax, and insurance complexities surrounding succession planning. Contact us today to ensure that the business legacy you worked so hard to build will continue to thrive even when you're no longer running the show.

We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. Or schedule online.

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