Once you’ve become comfortable with the idea that you want your business to continue after you’re no longer around, you must plan for succession in order for it to become a reality. How do you start?
Find a successor. If you have a family member who you think is up to the job, you can consider transferring ownership through your estate planning process. Look at your pool of existing employees. You can prepare your workers for management and leadership roles so they’ll be ready to replace you or other managers when the time arises. Just keep in mind that leaders aren’t always easy to find and it takes time to mentor someone into a management role. Is there anyone at the business who knows the general operations already?
Train for leadership. Once you find someone, create a training plan not just for the new CEO but also for everyone whose roles will change once you exit. You may find many people need to learn skills, gather information and practice leadership roles critical to the future success of your business. Your return on your training investment comes not only by ensuring that your successors don’t leave the business but also by creating a pool of employees ready to step into the role if someone does leave.
How to sell
You’ll want to determine the best selling arrangement, which usually involves a buy-sell agreement to ensure fair compensation and maintain control of the business. Other common ways to transfer ownership:
A business succession plan guides you through the change in ownership. If a purchase is involved, the sale price and purchase terms are clearly outlined, relieving your family’s stress. Your plan aims to benefit everyone — you, the departing owner, the business, employees and the successor.
Your plan can include:
Consider the tax implications
Looking at the family succession plan, you’ll have to think about tax exposure arising from one generation giving way to another in a closely held family business. Multiple types of taxes have to be considered, including:
You’ll want to start family succession planning as soon as you can in order to have more flexibility with the plan. Consult with an attorney and an accountant to put the proper estate documents in place.
Succession plans serve an important function in your business’s lifespan if anything happens to you. The plan can help reduce headaches, drama and monetary loss so your operations continue and clients don’t experience any disruptions in service. Ensure that the business operates smoothly throughout the transition. You don’t want your family or heirs to be forced to sell the company under duress and, in effect, shortchange the value of the business you’ve built.
You don’t spend 30 years running and building a business only to leave empty-handed. The majority of the value in your company can be found in its goodwill and intangibles. A succession plan works when you know how your business will transition, who will take over, and how heirs and partners will be compensated.
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