A business succession plan is like an estate plan for a business. These are especially useful for family-owned and closely-held companies which would otherwise have no procedure for replacing leaders who die, retire, or become incapacitated. With the right plan in place, your company can continue to operate smoothly with the best people in charge. SederLaw regularly works with clients who want to ensure that their businesses are properly taken care of if and when they become unavailable. And like any good plan, it can help to have a checklist handy.
What You Need to Start Your Business Succession Plan
To build your own business succession plan, start with the following:
Successor. Perhaps the most important part of your plan is identifying who exactly will take over the business if and when you are unable to lead it. Every business is different, so there is no precise formula for selecting the most capable person to serve as a successor. However, there are a few factors you should take into account:
- The type of business you have
- The industry in which your business operates
- How your business is structured
- Parties involved (e.g., are the owners family members?)
- The business background and experience of the potential successor
Training materials. No matter the qualifications of the person you select as successor, that individual will need to be trained in how to run the company. Assuming that someone can step in without understanding the specific demands of your business is a mistake. Training materials do not have to be complicated or expensive, just sufficient to ensure your successor is ready to hit the ground running if and when called to duty.
Guidelines. The succession plan should specify the exact steps of the succession plan so it can be clear to everyone whether the plan has been successfully implemented. Simply allowing the successor to take charge without clear guidelines in place can breed mistrust and uncertainty. The best guidelines will assign clear roles to everyone involved in the succession process while upholding your company’s values and business objectives.
Dispute resolution process. It is possible, and for some companies inevitable, that succession will bring disputes. This may take the form of conflict between the successor and the existing leadership, or it could include factions among the existing leadership. Even the best succession plans can fall victim to litigation, which can deplete company resources, interrupt operations, and jeopardize the company’s future. A solid dispute resolution process is a must for any good succession plan.
Communication plan. To minimize the likelihood of dispute, your business succession plan should be clearly communicated to existing leadership and other stakeholders. Keeping everyone on the same page engenders trust and reduces the possibility of distractions when the succession finally takes place. It also demonstrates respect for the company and its leaders, which will go a long way.
Business valuation. Some business succession plans contemplate the possibility that the company will one day be sold after its current leadership passes (or some other triggering event takes place). A business valuation will be necessary to determine both the company’s present market position and its projected future one. Even if the company is not to be sold, a business valuation will help your current and future leadership understand its true worth.
Vital records. What are your company’s vital records? A successor needs to have access to these (and other) documents when the time comes to take over:
- Last will and testament of the decedent owner
- Powers of attorney
- Property records, including deeds, leases, titles, and more
- Tax returns and other records
- Bank and credit account information
- Contact information for all professional third party vendors
Contact SederLaw Today For A Consultation
These are only a few of the items you will need to get started, with potentially many more depending on the nature of your business succession plan. Ready to get to work? We’re ready to help. Call SederLaw today.