You’ve spent your life building your business, and the day-to-day may consume most of your time. However, there will come a time when that torch passes to a successor. Whether it’s the heir to the family business, your most trusted senior employee, or an outside entity looking to buy out the company, succession planning is one of the most critical moments in the life of your business.
Getting a head start on your business succession plan will prevent a disorganized transition. Unforeseen circumstances may expedite the transfer much sooner than you anticipated. As a business owner, you’ve probably harped on the importance of preparedness, but have you heeded your own words of wisdom and begun drafting a business succession plan? Get ahead of Father Time to ensure the longevity of your business with strategic succession planning.
What Is Business Succession?
Who Needs a Business Succession Plan?
The High-Level Aspects of Business Succession Planning
Succession planning is a lengthy process, involving several preliminary steps and a number of moving parts. Let’s break down the most important aspects of crafting a business succession plan and what to look for in a successor.
Choosing a Successor
Developing Within or From Outside
What to Look For In a Successor
- Essential Attributes: Ask yourself, “what makes a good leader?” Develop a list of the leadership qualities you believe are most important to running your company and look for those qualities in your candidates. However, don’t go looking for a clone of yourself. While you want someone who shares your vision for the company, a fresh set of values and practices can propel your business into the future.
- Life Experience: Candidate A may have a Masters in Business Management. But Candidate B, who only has a BA in Finance, may have spent the past several years at helm of a company similar to yours. Does experience supersede education for your business?
- Company Culture: The ideal candidate embraces your company’s culture. They’re someone your employees and board of directors will happily rally behind. If you select someone unwilling to embrace your company culture, you risk unwanted change in the workplace environment, which could drive top-performing employees to your competitors.
Create a Succession Timeline
Types of Succession Plans
- Selling to a Co-Owner: If you are equal business partners, you may opt to sell your shares to the co-owner(s). However, many situations like this are the result of the death of a partner and lean on a founding buy-sell agreement. A buy-sell agreement is a binding contract that governs what happens to an owner’s shares upon death or retirement. In most cases, other controlling partners agree to buy out their shares to avoid conflict.
- Keeping It in the Family: Passing the torch to an heir or other family member is a popular business succession method. However, it does come with its share of drawbacks. For starters, the heir must be equipped to run the business, and there must be a clear determination as to who will take over. Uninvolved business heirs can also use a buy-sell agreement to sell their shares to those who are staying involved.
The Benefits of Effective Business Succession Planning
This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Polaris Wealth Advisory Group unless an investment management agreement is in place.