26 Aug Business Succession Planning: Frequently Asked Questions
Any discussion of business succession planning has to start with the overall structure of the plan. First things first, you need to remember that this document is flexible and can be changed at any time. A business succession plan is not a document that is going to be static — the plan must adapt to several variables.
What variables should be considered?
One of those variables is owner’s personal goals or values. For example, I was working with a small batch farmer who did not want the business to be taken over by a large conglomerate such as Monsanto.
Business succession also involves company values. For example, if you have a company that strongly values collaboration, then business succession plan that would break up a sense of collaboration and comradery would be a great disconnect to what you’ve already built.
Emotions themselves are variables. The process of preparing your business’ future in the case of disability or death is extremely emotional. This variable should not be underrated. We must discuss some very unpleasant topics as we play out potential scenarios moving forward.
How long does a plan take to create?
As an ongoing process, you also have to involve your management team. If you’re not familiar with the concept of a management team, you can find some of our posts on that topic here. Ongoing discussions with your attorney, accountant, financial planner, specialist, etc. are very important. A business succession plan takes a long time to create, often ranging from six months to a year due to the high number of emotional subjects, variables, and parties that are involved. It is certainly a step-by-step process.
Who should be involved in the plan making process?
Involved parties range from loved ones to business partners and employees to your management team.
If you want to involve your employees, you must spend some time thinking about the qualifications and level of trust that you have in each one of them.
There is also the aspect of family. If your family is not interested in running the business, it is an insult to them on many levels if they are obligated to run the business if you do pass away. They should be offered the opportunity to look beyond your passing and perhaps sell the company to another party. For example, I once worked on a case where one spouse owned the company and the other spouse was an employee. The employee spouse expressed that he does not want and never wanted to run the company. He preferred that other senior managers take on that responsibility.
Who are likely successors to a business?
If you happen to have a business partner, we will talk about the concepts of a buy-sell agreement with partners.
A spouse is a likely successor, though one must be mindful of their interest and qualifications to run your business, particularly if your business is a service business that requires a certain amount of understanding, education, or a professional licensing to run and operate.
You can consider children, grandchildren, or other family members, but again the same topics of interest and qualification need to be addressed.
Also, you can consider employees, particularly if you have a long-term company with dependable employees. They know the business well and perhaps they are fully qualified and very interested in running the business in your absence. It may be the best decision to make, and there are multiple methods to make that happen from employee-owned businesses or employee stockholder plans. You could also think of a single key employee, such as a senior manager or the business owner’s right-hand person, to take over the business.
Finally, there is the potential for third party buyers. A lot of people may not think about this, but a mandatory sale of the business in your absence whether disability or death is a perfectly legitimate business succession plan, particularly if you don’t have a business partner, interested or qualified family, or available employees. This may in fact be your best option.
In the next post we will be discussing severity as related to disability. You can check out that post here, or contact us today to get started on your business succession plan.