Why Is Business Succession Planning Important?
There are several reasons why having a business succession plan is valuable. First, a business succession plan is crucial in preventing your business from falling into the wrong hands. The last thing you would want as a business owner is for all of your hard work to disintegrate due to someone else’s actions.
In the same sense of wanting your business to be in good hands, you also want that person to be well-trained and capable of continuing to run your business. Having a business succession plan means that both you and your successor know what the possibilities are and can focus on proper training.
Second, a business succession plan helps avoid any unnecessary taxes. It can also minimize any negative effects that would come about from your departure from the company.
Finally, having a business succession plan can help you manage any outstanding debt that may exist after you leave your company. Working with an experienced business succession attorney is essential to navigating your debts and taxes effectively.
Types of Business Succession
The term business succession might make you think that you need to pass on your business to someone. Passing it on to an heir or a trusted partner in your life is one route you can take for your business, but that isn’t the only option. You may also sell your business. The money may go towards your estate, which is then passed down to your loved ones. Or, your business may go to a co-owner or a key employee.
What Should the Plan Include?
When establishing your business succession plan, there are critical components you should include with the help of an attorney, such as:
- A succession timeline: This outlines the details surrounding the circumstances when a succession would take place. Any timelines and important dates should be documented.
- Your potential successors: Try to include a preferential order of succession.
- Formalized standard operating procedures (SOPS): Provide documents, procedures, employee handbooks, and training documentation that would be crucial for any successors.
- Your business’s valuation: This can shed light on the company’s financials and market position, and also ensure that all stakeholders involved are treated fairly.
- How your succession will be funded: Your succession may be funded by seller’s notes, savings, or anything else.