SUCCESSION PLANNING
Succession plans vary from business to business, but are essential for all kinds of companies
A business succession plan outlines how a business will move from one existing management or ownership group to another. It focuses on helping the existing owner and manager make the transition in an organized manner to avoid business disruption. There is an old proverb that says, “If you are headed nowhere, you will get there.” A business succession plan states the goal for transition and how the business will get there. Having a succession plan is particularly important for family businesses.
What items should be included in a business succession plan? There is no comprehensive list of items, and the contents of the plan really depend on the business itself. For some businesses, the answer may be a sale to a third party, and the plan should focus on how to get the business prepared for a sale and the transition that follows. For other businesses, the answer may be a sale to existing employees or managers. In that case, the plan should focus on how to finance and implement the sale. For still other businesses, the ownership may remain in the family, possibly with the family taking no role or a reduced role in managing the business. In that case, estate planning can be an important concern. Is a succession plan only necessary as the business owner approaches retirement?
No. A business always needs to be focused on its future. While the owner's retirement — or death or disability — sharpens the issue, the issues are always there. A business needs to focus on its future and the challenges it may face. For example, a business may anticipate a decline or expansion, where the plan may need to focus on employee and manager changes, inventory and financing concerns and, possibly, even a sale. Likewise, a business may depend on one or more senior managers, each of whom needs a designated, trained successor.
Who should be involved in creating the plan?
It depends on the business and the succession plan. Typically, the owner and his family, as well as the accountant, a business lawyer, an estate planner and a tax adviser are all involved. It may also be valuable in certain cases to involve a banker, an investment banker and some or all of the business's senior management team.