Now is the time to start the succession planning process.
Handing over the reins to your business can be difficult at best, painful and emotional at worst. For this reason, many business owners avoid even thinking about it. But leaving succession planning on the back burner could leave your business in a perilous spot. From identifying future leaders to developing a viable succession plan, our business and tax consultants can help you take the next step.
What Does Succession Mean in Business?
There’s a lot more to taking a step back from your business than setting a retirement date. This is true whether you plan to transition your business to an outside party, a close family member, or internal talent. Engaging in succession planning—a process that helps you identify new leaders who can step in when you vacate your position—gives you more control over this critical transition.
What Are Your Succession Planning Program Goals?
Envisioning what you’d like to see happen to or within your business is the first step of a building a succession planning program. With so many options, it can be difficult to determine which is right for you and your family. To help you articulate your succession planning goals, here are a few questions to consider:
- Do you wish to maintain a family legacy? If so, will you achieve this by gifting or selling your business to the next generation?
- Will you seek to maximize your profits from the sale?
- Will you gift or sell units of your business?
- Would you be willing to sell to a competitor or other outside party?
- Do you want to transition your business to an employee stock ownership plan (ESOP)?
- Have you considered selling to a key employee?
Identify Future Leaders and Their Potential to Develop Skills
Who will fill your shoes? If you have been the only face of the business, you’ll need to introduce your successor to the nuances of your job—and to your customers or clients. This applies even if you want to leave its operations and still continue to own; someone needs to have your skill set for the business to continue. What’s more, this individual should understand the organization’s long-term goals and objectives, even if they wish to alter its course. And if you’re planning to sell to an outside party, remember: a strong staff is one of your biggest assets.
When to Start Planning for Succession
It’s never a bad idea to start the succession planning process as soon as possible. There are a myriad of events, both positive and negative, that can cause you to lose control of timing. For example, if a buyer comes to you out of the blue with an offer you can’t refuse, it may be cause for celebration, but timing will likely be out of your control. On the other hand, an illness or death may force the transition to happen immediately.
Ideally, you should start planning for succession three to five years before you want it to happen, as this is how long it takes for someone to learn your job. This should also give you enough time to establish measurable succession planning goals, make adjustments to your financial reporting, and possibly change your entity structure.
How to Prepare Your Business for Succession
First, think about how someone else might run your business. This exercise can help you present your business’ financials in the best possible light to prospective buyers. Then, identify and remove the perks. Be honest with yourself: Do those Vikings season tickets really deliver a financial benefit, or are you just a die-hard fan?
Next, take a look at your bonus programs. Do you have a set formula for these? If not, consider instituting one. It’s easier to explain a formal program to a prospective buyer, and it’s also better for your staff to have a goal to work toward.
In the meantime, consider delegating or sharing some duties with your staff. The stronger your management group is without you, the better. This can help to maximize your sale price as well as facilitate a smooth transition.
Prepare for a Seamless Succession Planning Process
We’ve been through quite a few transitions of our own in the last 90 years, so we understand the process. We also understand that it has to be your idea—no one can talk you into it. Knowing you’re ready to take action is the first step. The more time you allow yourself to complete the process, the more seamless it will be. When you’re ready to outline your succession planning program goals, we can help you evaluate financial results and structure compensation programs, as well as answer any questions you may have.