The Basics
A succession plan is essentially an in-depth roadmap, explaining how and when leadership responsibilities will be transferred once an owner, CEO or other key staff member transitions out of his or her role. Many plans focus on the most senior managers, but key positions that are crucial for the operation of an organization that will be hard to replace need to be included in a succession plan. In the majority of succession planning cases, this process is one that should involve the outside assistance of a lawyer.
Succession plans, while primarily focused on who will succeed the current position’s holder, should also include things like your company’s mission and vision statement, future goals, preferred exit options and a business evaluation.
Above all, succession plans are designed to help account for all of the “what-ifs” that can arise as you move away from your business. A strong business succession plan can ensure business continuity, help business owners prepare for retirement and minimize the tax impact related to the sale of a business.
In essence, business succession plans are designed to help you answer the following questions:
- Who can I trust to run my company after I am no longer involved?
- Will someone buy my company and who will it be?
- How do I identify and train potential successors before I leave?
While business succession planning can be a lot of work, it should be treated as a normal part of the business lifecycle—one that can make or break your business.
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The Importance of Succession Planning
It is not unheard of for a business to be sold off or close abruptly as a result of the untimely death of an owner or a poorly planned retirement. Succession plans are meant to help businesses avoid this sudden halt in production, ensuring a company’s success well beyond an owner’s years.
In addition, a succession plan builds trust with your existing employees—illustrating that you are not only committed to preserving your company’s infrastructure, but the jobs of your current and future employees as well.
Your business should only cease when you say so, and not as a result of unforeseen circumstances.
When to Start Planning for Succession
While many business owners tend to put off succession planning, the truth is that it is never too early to start. Unforeseen circumstances related to the physical or mental health of a business owner can be devastating to a company’s workflow.
While some experts suggest creating a succession plan five years prior to the business owner’s retirement or exit date, succession planning can be built into a startup plan. In this sense, succession plans should be looked at as more of a process than a one-off document.
When it comes to ensuring the permanence of a business, earlier is always better. Creating your succession plan ahead of time can help you achieve the following benefits:
- Strengthen your company and prioritize overall goals.
- Aid in transition periods, especially in times of crisis.
- Guarantee the best deal if a buyout or sale occurs.
- Minimize confusion and help avoid business disruptions.
Effective succession plans take time to develop. However, a little effort upfront can make all the difference when it comes to securing your business’s future.
Rely on our experienced professionals to guide you through strategic succession planning, safeguarding your business today and ensuring a resilient future tomorrow. Contact us today to learn more about Tilson’s solution stack to empower your business.
