What if everything in your life could be scripted like a movie? Every course of action could be planned perfectly, exactly as you’d want it to play out.
Well, that’s why it’s called a movie and not reality. And fortunately, that’s what makes life exciting.
In business, your day-to-day operations that enable you to thrive take up the majority of your time. But what happens when there’s an unplanned event that could trigger a wealth transfer need for a succession plan? Generally tragic events including death, incapacitation, disability or any unplanned event would cause significant disruption in the continued operation of your business.
Succession Planning Explained
Succession planning is defined as the process of identifying and developing specific individuals with potential to fill key business leadership positions in the company.
There is succession planning as it pertains to all businesses, ensuring the business and key roles continue to be filled in the event a key individual leaves the business planned or unplanned.
These businesses have a more difficult challenge if the hope is to keep the business in the family. Identifying who would take over the key roles depends on the specific family make up and abilities of those at the specific time. For instance, if you hope for your son or daughter to take over the family business, but they are only 17 years old, it could prove challenging.
Note: There is also continuity planning that may involve buy-sell agreements between partners to ensure similar planning or protection should unplanned events (or even planned in some cases) occur.
Immediate Steps for Succession Planning
- Have a Plan: It is important to be prepared, even if minimally, of what the plan of action is should a tragic event occur. At the time, it will be unsettling and difficult to focus on establishing a plan with all that could be going on outside of the business.
- Document the Plan: Keep records so that it is clearly understood by all parties involved. This should include other family members or key stakeholders who may need to be involved.
- Engage all Stakeholders: This would include partners, employees, mentors, advisors and other people in the family.
- Tax: Understand possible tax implications involved with your plan should there be wealth or ownership transfers.
Assess your planned successor to ensure they will be in a position to be successful in accomplishing your vision. Ensure they hold the key attributes to be successful in your industry and specific business. A few things to consider here are to make sure the person:
- Shares a similar vision, values methods, etc.
- Is familiar with the business, products, clients, company strategy, etc.
- Is open to additional education and is willing and able to learn both now and when they would potentially assume the role
- Is accepting and flexible when it comes to the current company landscape including structure, staff, policies, procedures
- Will adopt full-time commitment and invest the same level of energy, passion and dedication into the business you have
Business Valuation as a Solution
Business valuation will not be able to keep a succession plan in order, but will assist in understanding the current company landscape. It will add additional knowledge to the business owner to make the most educated decisions for their specific situation.
Many small and medium sized business owners are focused on the income-generating aspect of the business (bottom line), but can overlook the overall value of the business ownership.
Being well informed of your business's value will assist in developing your specific plan. Even with a well-established plan a potential sale of the business may occur. It is important to understand this possibility and the true value of the business to make an informed decision should a sale situation arise. You do not want your hard work being sold at a fire sale price once you are out of the picture because parts of the plan may have changed.
This post was written by Chris Beaty, Director, Business Development and Strategic Partnerships. Learn all about him here.