There are three essential steps to developing a business succession plan.
- Define your long-term personal and business goals.
- Develop a management plan for the business.
- Design an estate plan that transitions ownership of your business and meets your goals.
In this article, we look closely at the second step.
Develop a management plan for your business
Train Your Team
Who will fill your shoes? Is there a key employee or family member slated for the role? Is your leadership team ready to take over? Will your family have sufficient resources to hire your replacement?
The second step of business succession planning involves mapping out the future management structure of the business. For many business owners, it is difficult to give up control and transition day-to-day operations of the business to new leadership. However, whether management of the business will fall into the hands of the next generation, into the hands of current key employees, or into a combination of both, planning ahead is essential.
Training the successor management team may take several years. A gradual transfer of leadership can provide a successor time to grow, ensuring that they have the necessary qualifications, skills, and support to succeed in the role.
Establish Your Advisors
To assist your successor during the management succession period, you may consider establishing an advisory board. An advisory board may consist of the business attorney, accountant, financial advisor, and may include other business owners. The advisory board serves to provide counsel to the successor and strategically plan for the continued success of the business.
Ensure Employee Retention
A succession plan must also address methods of guaranteeing the continued employment of key personnel following your retirement or in the event of your death or disability. While premature death of the owner is the worst-case scenario, your plan must take the possibility into account. An employment agreement, for example, establishes key employees’ job responsibilities, compensation, and benefits. The agreement may also outline incentive compensation, a profit sharing plan, and a non-compete clause.
To safeguard against financial loss due to the unexpected absence of a key employee, your business may also purchase key person life insurance, disability insurance, or both.
What is business succession planning?
If you have been actively involved throughout your career in building your business and overseeing its continued success, thinking about retirement can call for answers to difficult questions.
Your situation may involve a child who is part of the business. You may have certain employees who wish to take over. Perhaps you have neither, and your questions begin with finding a buyer. Your concern may lie primarily in providing for your spouse in the event of your death or disability.
These are all common scenarios faced by business owners. How do you leverage your years of hard work you have invested in building a successful business to ensure it continues to flourish through a transfer of leadership to the next generation?
A successful transfer requires intricate planning. Failure to properly plan for a smooth succession during your lifetime can result in monetary losses, increased taxes, damage to family relationships, and even loss of the business.
Estate planning is an essential component of the succession planning process. The goal of estate planning is to ensure that your loved ones are cared for after you are gone. Estate planning provides for the management and transfer of your assets, including your business, in the event of your death or incapacity, at the lowest financial and emotional cost for your family.
Business succession planning integrates estate planning techniques in order to position the business for continued success throughout and following its transfer.
Ready for the next steps? Need to review? Read more in our business succession series:
- Step 1: Define Your Long-Term Personal and Business Goals
- Step 3: Design an Estate Plan to Transition Ownership of the Business
Pittsburgh Business Succession Planning Attorneys
Dan Lynch, Founder and Managing Partner of The Lynch Law Group, routinely helps business owners with their business transitions. For questions about this process, Dan can be reached at email@example.com or via phone at (724) 776-8000.