Have you built a successful business that has withstood the test of time? If so, you are part of the minority. Over 70% of small businesses fail within the first decade.
To make it 10 years or longer is an impressive feat. And it likely has to do with the fact that you are at the helm.
But what’s going to happen to your business and your employees if you can no longer run the day-to-day operations? What if you died or became seriously ill? That’s why you need to think about business succession planning.
What is business succession planning, and why is it often overlooked by business owners? Everyone thinks they are invincible, but life happens all of the time.
If you want to ensure your business continues moving forward after you can no longer run the ship, then read on below for some helpful tips for successful succession planning.
Succession Planning Is Not an Exit Plan
From day one of starting a business, you are told that you need to have an exit plan. An exit plan is how you will eventually remove yourself from running the business while at the same time reaping the financial reward of all of your labor over the previous years.
For many people, an exit plan is selling the business to another owner or to a larger company. When this happens, the owner experiences their biggest payday yet and can choose to continue working or to retire early.
Sometimes an exit plan is passing the business down to children, or just selling your share of ownership to a partner. For bigger companies, this often means going public by performing an IPO.
In any case, an exit plan is something that is worked towards on a daily basis. It’s a planned event, with a strategic timeline and process.
Succession planning for business owners is different. A succession plan is something that kicks in when the unexpected happens, and decides how the business will continue to operate, should you be all of a sudden removed from the picture.
What is Business Succession Planning?
Family business succession planning is the process of creating a legal plan that will outline what will happen with the business if the current owner and/or manager all of a sudden dies, is incapacitated, or is forced to retire early.
In any of these instances, the business is caught off-guard by a major event. Those without a succession plan in place often crumble within days or weeks following the untimely death of an owner.
While your business has taken you years, if not decades to build, can disappear in days without a proper plan.
A succession plan is typically a series of documents outlining the key personnel and financial decisions to be made in the event of your sudden absence from the company. It is essentially the final “will” of your company.
It should outline the transition of ownership and management of the business, and provide step-by-step guidance to those who will need to handle the process.
If a sale or purchase is to be made, all of these financial decisions should be clearly defined in the plan, relieving others of having to make them on their own.
Why You Need a Succession Plan Now
In order for your company to continue moving forward after you can no longer run it, a transition of ownership and management needs to occur immediately. If your company is in limbo, and nobody knows what’s going on, it will start to unwind.
And once a company begins falling apart, it’s usually impossible to save it, without the owner present.
Succession plans make the process of handling your absence as seamless and quick as possible. It helps the day-to-day operations continue moving, without barely skipping a beat.
Without a plan in place, it could cause untold stress and hardship on key employees, family members, and anyone else who has an interest in the business. It could create tension and strain relationships if decisions had to be made by those who were grieving.
But with a plan crafted well in advance, and revised regularly before your passing, then the process will be smooth for all parties involved.
Plus, smart employees who may consider working for your company may ask about your succession plan before taking a role with your company. They know how important a plan is, to ensure they still have a job after something happens to the owner.
Many attorneys have noted that business succession planning is neglected by most small businesses. And it’s understandable since business owners are some of the busiest people on the planet. The truth is, you’ll never have time to think about it later on. You need to plan now, or your business will be doomed.
Take Succession Planning Seriously
If you’re a smart business owner, then you are ready to start planning for business succession, even if you plan to be around for a few more decades.
The process of developing a succession plan takes time. It’s not something you can whip up in a day or two. Many business owners will take the better part of a year to build out a plan.
It comes as the result of consulting with family, with your team, with your advisors, and with other key people like your attorney, tax advisors, and bankers.
Business succession planning strategies take time to develop, as you want to ensure you identify the right successor(s) for the transition.
By allowing yourself months to develop a plan, you’ll be able to consider all of the factors involved and figure out the best way to benefit everyone, both those inside the company and your family and dependents outside the company.
Planning Ahead Is Critical
So what is business succession planning? It’s the plan that you create ahead of time that outlines what should happen with your business if you can no longer run it due to death, sickness, or other reasons.
Your business deserves to continue running and growing, and a succession plan is a way that happens. Smart business owners create one long before they plan on moving on from the company since life is full of surprises.
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