Nothing succeeds like succession planning
Like insurance and a will, succession is not something you put in place at the point in time when you 'need' it - succession is something a good business has in place all along. Establishing a sound business succession plan is beneficial for most business owners. For business owners that are at or near retirement, the issue of succession cannot be ignored.
Succession is the process of passing on the active management of a business in such a way that the business continues with minimal or no disruption when the change in management (and possibly, but not necessarily, ownership) takes place. The process should include not only a plan, but the actions necessary to make it happen. The day succession is needed is not the day to put it in place. It should be in place now. An established succession plan means:
- that the business is not dependent on the day-to-day physical presence of the owner/manager for its continued profitable growth. In practical terms, it means that the owner/manager has time to spend with family and friends, time for well-earned vacations or perhaps even time to start another business. It means that the business employs knowledgeable, motivated people.
- that if the owner/manager dies or becomes disabled his or her family and employees are not left unprotected. The business will continue in an orderly fashion.
- that the necessary financial and legal elements have been secured with the assistance of qualified professionals: accountants, lawyers and financial planners. These elements will include some or all of the following:
- a will
- shareholders' agreement
- tax and retirement planning
Contingencies should include not only the certainty of death and the possibility of disability, but steps taken now can help in the financing of a future sale to a third party, existing management or the next generation.
- that if the owner/manager chooses to sell the business at some point, the pool of prospective purchasers can include investors who do not immediately have the skills necessary to manage the business or who perhaps have no intention of ever managing it. A larger pool of potential purchasers means a higher price.
- That at the point the owner/manager wants to retire, the business does not have to be sold. The 'owner/manager' can simply transition to being the 'owner' - because management is in place.
Remember, it is never too early to begin planning succession issues.