In the United States, nine out of 10 businesses are family-owned. Less than 30% of family-owned businesses continue on to the second generation. In most cases, the reason for this is that business owners had no succession plan in place. Creating a business succession plan is essential for the life cycle of a business. Without one, businesses are often unable to endure future changes, whether expected or unexpected. The recent Covid-19 pandemic is a perfect example of how businesses small and large can be impacted, even forced to close their doors for good. Those interested in learning more about business succession plans may want to reach out to Centonzio Law, PLLC at (800) 342-2727 (Missouri) or (727) 245-9025 (Florida).
The Goal of a Business Succession Plan
According to the Small Business Association, it is estimated that about 70% of businesses that are privately owned will exchange hands over the next 10 to 15 years. The goal of a business succession plan is to position a business so that should a disruption occur, it can continue to operate. Additionally, it must be established what is and is not essential for the continuity of the business. Some of the questions that are key in creating a business succession plan and during the goal-setting phase include:
- What short-term measures could improve the business’s value if a business owner plans to sell the business at some point in the future?
- Is it likely the choice of a new leader will create resentment or bitterness among the business’s staff members (or family members)?
- Should a business owner sell the business, or keep it?
- Who will be at the helm if the business remains in the family?
- Do prospective successors have the interest and required skills necessary to lead the business?
- Does the operating strategy currently in place support increasing or preserving stakeholder value if it is decided the business will be sold?
The goal of a business plan can differ from one business to the next depending on the industry, size, scope, and other factors. Countless businesses suffered during the initial outbreak of Covid-19, and many continue to suffer losses in the current pandemic.
How To Develop a Business Succession Plan
When it comes to business ownership, business succession planning is something many business owners put off, thinking they will deal with it later. The problem with this is that no one knows when the unexpected may occur – it could be tomorrow, next week, or next month. The impact on employees and family members can be devastating when something catastrophic or unexpected occurs. Businesses that do not have a succession plan in place often have problems retaining and attracting talented executives and employees. A business succession plan should be developed to:
- Name one or more successors
- Provide for possibilities and uncertainties
- Incorporate tax planning
- Talk about communication with customers, employees, and family
- Address expected timing
- Provide for execution of the succession plan
- Address the business’s value
Creating a business succession plan can be stressful and fraught with concerns. Those with questions may want to consider visiting with Centonzio Law, PLLC.
5 Key Steps for Creating a Business Succession Plan
Business succession planning should be performed 10 to 15 years prior to retirement. Some business owners do not plan to retire at all, however, business transition planning is vital in the event something unexpected occurs such as becoming disabled, a serious illness, or death. The key steps to a solid business succession plan include:
Deciding What Is Important
Business owners should determine what they want to happen to their businesses, and how they want to spend the remainder of their lives. Discuss goals and objectives openly and honestly with family members. Not having this discussion could result in resentment and contention among family members.
Identify Who Is Capable of Stepping into Key Positions
Who is qualified to take over control of the business, and are there two or more candidates? Depending on the business, family members may be capable of taking control, or even employees who have already shown their capabilities in other aspects of the business. There may be several key roles for which candidates may be best suited. It is important not to discount employees who demonstrate the skills essential to thriving in a position of authority, even when they may not be the person next in line for promotion.
Mentor Your Successor
Once the candidate(s) are chosen, spend time with them to ensure they are thoroughly trained in every aspect of the business. Candidates can gain substantial experience and knowledge by rotating in various job positions, which enhances communication skills and interpersonal abilities such as diplomacy and empathy.
Put Your Succession Plan into Practice
An unexpected problem or crisis can occur at any time, so it is recommended business owners do a trial run with prospective successors. Perhaps the office or kitchen manager is taking a week-long vacation, or another key player is on medical leave. Giving candidates an opportunity to assume important responsibilities helps them gain additional experience. It also helps business owners in assessing where additional development or training may be needed.
Write It Down
Business owners should document every detail of their company succession planning. Some of the things to include are the development of a buy-sell agreement, reducing tax implications by amplifying valuation discounts, and selecting the correct amount of insurance. An accountant and estate planning attorney can help tremendously with this document, which should be shared with family members and other interested parties.
Consider Scheduling a Consultation with Centonzio Law Group, PLLC
Creating a business succession plan is essential for all business owners, regardless of whether it is a small or large business. According to the American Bar Association, family-owned companies account for 66% of all businesses globally. Developing a succession plan takes time and is not something that is completed within a few days. Those in need of legal guidance may want to consider scheduling a consultation with Centonzio Law, PLLC at (800) 342-2727 (Missouri) or (727) 245-9025 (Florida).