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Four Steps to Successful Succession


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Protect your future by planning for the expected and unexpected

You know it’s going to happen eventually. Whether it is the results of a sale, a well-planned turnover of power or an unexpected life event, the day will come when you are no longer running your business on a day-to-day basis. Before that day comes, you will need to develop a plan for the transition of the business you built.

If you’re like the majority of business owners, you are probably underprepared for the potential succession of your business. You may be so busy building and running your business that what happens to the business after you leave is low on your priority list. But if you want to ensure that what you have built continues to bring value to your heirs, employees, customers and the community, you had better have a plan for succession. Many business owners believe that succession planning is something to take care of tomorrow, next year or next decade. In reality, every business is one minute away from a potential change in management. Is your business prepared for organized succession?

Too many business owners make the mistake of thinking they will have plenty of time to plan for the handover or sale of their business. They believe that when the time comes to retire they will simply hand over the company to a family member, or if worst comes to worst, they will sell the business for a nice sum, pack up their things and begin the retirement they deserve. In some cases everything may work out just as hoped, but life and business don’t always just work themselves out. If you fail to plan for succession you could end up getting far less than your business is worth or even worse – you could leave a business with a leadership crisis the threatens its future and pits family members against each other.

What should you be doing to create a succession plan for your business? Here are four simple steps that will get you headed in the right direction.

  1. Identify your Objectives

Before you can create the right succession plan for your business, you first need to determine your objectives and priorities. Is your first priority the continuation of your business? Is it that your children eventually take over? Or do you simply want to ensure that the business is sold for maximum value? Every business owner has unique goals and objectives when it comes to succession, and objectives can change over time as situations change.

Start your succession planning by developing a vision for the future of your business and your family. Determine the importance of continuing family involvement and continued independence. Establish personal retirement goals and estate objectives. Knowing your objectives for your  business and your family will allow you to strategically build a great succession plan.

  1. Plan for the Expected and the Unexpected

Once you understand what you are trying to achieve, you will need to plan for both expected and unexpected transition.

For transition upon retirement, your alternatives may include the sale of your business, the handover of your business to family members or even the sale of your business to employees. If a sale is your ultimate objective, your succession plan should be built around maximizing organizational value up to and through the sales process. If business continuation or passing the business along to your children are your priorities, your succession plan may center around the development of your heirs and your organization to handle a smooth and successful leadership transition. If your family is at the center of your transition plan, you will want to identify and establish a process for involving family members in decision making. Be very clear about your plan – documenting it and ensuring that it has been legally established. You should communicate the succession plan to all stakeholders – including family, non-family management and others in the organization.

Planning for the unexpected can be even more complicated. You will need to evaluate your long-term objectives and determine whether they align with the short-term realities. While you may want to hand your business down to your children when the time comes, they may not be ready for that responsibility yet. A sudden need for change could alter your objectives dramatically. If you have partners, you may not want to be in a partnership with their heirs, and they may not want to be in a partnership with yours. A buyout funded by a life insurance policy is often a good idea – along with an agreed upon method for valuation of the business. Having these plans in place ahead of time will prevent potential problems down the road that could threaten both the business and the value your family will receive from it. If you don’t have partners, your plan may be more complex. You may need non-family management to run the business for a period of time, or they may need a policy that would fund a purchase of the business from your heirs. There are many alternatives for unexpected transition. The right plan for you will be driven by your objectives, priorities and situation.

  1. Establish your Succession Plan

Once your strategy has been created, it is critical that your succession plan be put into action correctly. Your comprehensive succession plan may include many different aspects and require the assistance of several outside advisors. Your accountant can help you plan for maximizing organizational value, determining a method for the valuation of your business and for minimization of tax liability upon transfer of ownership. Lawyers can help ensure that your intended successors do not face uncertainty or challenges from other stakeholders, and insurance agents can help you fund any buyouts that your plan may include.

The establishment of your plan will likely require an interdisciplinary team involving key people from both inside and outside of your organization. Putting this team together and coordinating their activities will play an important role in ensuring the plan that you have developed is executed correctly.

  1. Update your Plan on a Regular Basis

If creating a succession plan is the most important factor in achieving your objectives, updating your plan on a regular basis is a close second. The right plan for succession today could be entirely wrong for succession next year. Your objectives could change, new family members or management could come or go, or the value of your organization could change significantly. A perfect plan today could be a big problem down the road if not kept current. To ensure that your plan is the right succession solution for your current situation, you will need to update your plan on a regularly scheduled basis. Lean on your advisors, whether accountants or attorneys, to help you with this process. They can help you recognize life and business events that would necessitate a change in your succession plan.

The bottom line is that an updated plan is generally a good plan, while an old plan may be worse than no plan at all.

So are you ready for succession? If you aren’t completely confident in answering “yes” to this question, now is probably the right time to visit or revisit your succession plan. At Presti & Naegele, we can help. Our team is experienced in quarterbacking the planning process – beginning with establishing goals and carrying through to assembling your team and ensuring the execution of the right plan at the right time. Call us today to get our experienced advisors started working for your goals.