If you own a business, the last thing you want is for your hard work to be for naught. Have you given much thought to what you want to happen to your business when you die? Though it is a bit morbid, business succession planning is a must-do for any business owner. In this article, we will go through some of the most common, basic business succession planning FAQs.
- What is business succession planning?
Let’s start with a basic definition. Business succession planning is a series of both financial and logistical decisions about who you want to take over your business after you no longer run it. There are a lot of elements that go into a successful business succession plan, so it is best referred to as a conglomeration of important steps and documents.
- What are the common ways to transfer ownership?
Some common ways to transfer ownership of your business include selling your shares to a co-owner or key employee. You can also sell your interests back to your company or to an entrepreneur outside the business. If you want, you can even keep it in the family by passing ownership interest to your heir/family member.
- Do you have to die for the plan to be put in place?
Though we referenced death in the opening paragraph, you do not have to die for this plan to be put in place. You can retire or leave the company—all that matters is that you are no longer running the business.
- What is the first step?
The first step of many is to determine a timeline. When do you want the succession to take place? Will it take place on a specific date or if you are disabled or die? After that, you can begin the work of picking your successor, formalizing SOPs, getting your business valuation, and more.
- What are some issues that companies face when succession planning?
Deciding who to promote is often a huge issue when succession planning, along with maintaining the moral of the company. It is in your best interest to do a through evaluation of your proposed successor, as you want them to be someone who will keep company morale boosted.
- How do you decide who to promote, if you go that route?
In reality, that decision is best left up to you. You should contact other people to see what they think, and our best advice is to just consider the issue really carefully. Determining leadership skills is not an easy task, and that is why this step of succession planning is often difficult for companies.
- What should the plan include?
Each business succession plan is tailored to the particular company, but some major documents in the plan usually include a timeline, list of potential successors, Standard Operating Procedures (formalized), a valuation of your company, and details about how your succession will be funded.
- Should other people weigh in?
It can be hard to know who to talk to during a succession. If you have people you rely on, don’t be afraid to ask them what they think. It is a weighty task to set up this sort of plan, and you don’t want to go it alone. Whether you tell your potential successor or not is up to you. Use your best judgment—if in doubt, hold off telling them until it is time.
- Can I change the plan?
Double-check with your lawyer just to make sure, but your succession plan can usually be updated, should you change your mind or have circumstances change.
- I’m confused. What do I do?
This process can be confusing, and if you’re struggling, contact an attorney. They are best-suited to give you third-party legal advice and insight.
Listed above are just some of the pertinent questions that business owners face when they are coming up with a succession plan. Above all, the most important step is number ten. Don’t be afraid to ask for help. Contacting an attorney will help shed light on the process, making it easier to maneuver.