Effective succession planning should begin on the day you open your business, if not sooner. As a current or aspiring small business owner, you are focused on developing your company, not thinking about your plan for exiting. Even though you want to see your business live on after you are gone, you may not have thought about how this will happen.
But proper succession planning is key to promoting the continued viability of your company after your retirement or unexpected events like divorce, illness, injury or death. A business succession plan benefits not only you and your successors but also your customers and clients by fostering a smooth, stable transition and uninterrupted service.
You should begin succession planning at least 10 years before the time you expect to retire from the business. There are several important aspects of a plan, including these:
- Develop an exit strategy — Decide whether you want to pass along your business interest to a family member or partner or transfer ownership through a buyout. Either of these methods is designed to keep the business closely held and to preserve its value and independence. Which one you choose depends on your particular circumstances and wishes.
- Identify potential successors — A successor may be a family member or a trusted business partner. If there are several competent and capable heirs or partners from which to choose, you may have to look beyond family ties and consider qualifications and experience. The succession plan should avoid creating conflicts among family members and business partners.
- Create a buy-sell agreement — This essential document governs the details of your transition from the business, such as whether your ownership share is to be sold, how that share will be valued and who will be eligible to receive it. Having a buy-sell agreement in place prevents uncertainty from arising among your partners and family members if you should die or are suddenly unable to participate in running the business.
- Develop a mentorship program — Take the time to make sure your potential successors have the training, knowledge and experience they need to keep your organization running smoothly after you are gone, as well as access to vital company information and records.
- Set out a timeline — Determine when your ownership and control will be transferred, such as on a predetermined date or a contingency like death or disability. Ideally, the transition should be gradual, so that you will be available to give guidance to your successors as they assume their new roles.
Effective succession planning requires careful consideration, preparation and communication. It should not be done in a vacuum but rather with input from your business partners and family and with advice from financial and legal professionals.
The Sterling Law Group, A P.C. in Sacramento and Roseville can help you set up a business succession plan catered to your particular needs and circumstances. Get in touch with us at 916-790-9202 or contact us online to arrange a video or phone conference.