Succession Planning

Succession Planning

Succession planning is an important process that many business owners need to consider and which many do not. For those that plan, it can work out very well.

Succession planning is a process that establishes new ownership and management and provides the ways and means to put them in place with a reasonable likelihood of success. The successor is usually a person already working in the business or a knowledgeable family member not presently working there. Part of the planning is how the price will be determined and payments structured considering that the buyers most likely will not have independent funds to make payment with. If not done with family members, it is done with a long employed group of loyal people that have become a sort of quasi family. Succession planning also needs the desire and resolve of the owner to see the business continue.

Succession planning needs to deal with the realities of the perception and feelings of family members that do not work in business. There also needs to be recognition that there might be an unequal distribution among family members working in the business and how they will feel about the choice of the new leader. Succession planning needs to provide for the equitable transition to the next generation where payment can be made and the business continues and maintains its “cash cow” status for the owner and family. Succession planning also protects the value for the owner since customers, staff, suppliers, landlords, bankers and others dealing with the business will have confidence of a continuing relationship.

Succession transactions are usually private events with not much public fanfare. Most of the background information comes from professionals assisting clients with little details of actual transactions disclosed.

Succession planning requires a carefully thought out plan or chaos could result. Succession planning should be done, even if there are no immediate plans to retire. Life insurance is purchased even though there are no immediate plans to die and prenuptial agreements are signed even though there are no immediate plans to get divorced. So, too, should succession plans be formulated as a precaution against unforeseen, unintended and perhaps inevitable future events. There is a responsibility of the owner to consider the needs of all those involved. Many times the owner is an inner directed person even though they are outgoing when they are with people. They simply may not be aware of the people that would be affected by what is done or what is not done properly.

If you own a business and haven’t developed a plan, why not start thinking about it?

Additional information can be found in a blog I posted on August 22, 2013 – 8 Steps for Successful Succession Planning.