At its most basic, succession planning involves a succession plan that documents a road map for partners, heirs and successors to follow in the event of your death, disability or retirement.
This plan can include a program for distribution of business stock and other assets, debt retirement schedules, life insurance policies, buy-sell agreements between partners and heirs, division of responsibilities among successors, and any other elements that affect your business assets. The plan may also establish the value of a business.
In the succession planning process, goals and objectives must be established, as well as the company’s assets. In addition it must be established how much control of the business does the owner want to maintain? Is there someone else capable of running the business? Are there key employees who must be retained? Are there sufficient assets to pay relevant succession taxes?
While clarifying these goals it’s also important to communicate with family, business partners and key employees.
Niall Glynn talks about succession planning
developing a sound succession plan
An effective succession plan must be flexible. Business, family and health situations are dynamic, and your plan must be easy to modify and amend.
Selection of the right individual to take the company reins once relinquished is key. And if more than one child involved in the business, who’s going to be the boss and which one merely get voting stock. The distribution of money and assets among siblings can be especially divisive. The challenge: to divvy up business responsibilities and assets in a way that allows the business to survive–and preserve a familys harmony.
Nine tips on Succession planning
If you’ve yet to give a thought to succession planning, or if you’ve simply been putting it off while you concentrate on more immediate tasks, use these nine tips for getting the process underway.
1. Start early
Business advisors recommend that entrepreneurs build an exit strategy into their business plan.
2. Keep it in the family
If your business is family-owned and you want to keep family harmony, it’s important to make sure that your heirs apparent know exactly who is being slotted for what roles. Examine the strengths of all possible successors as objectively as possible, and think about what’s best for the business.
3. Train your successor
If you decide to go outside the family, start devoting some serious thought to what you’re looking for in a successor. List the skills, interests, talents, and resources your successor must possess in order to capitalize upon the opportunity your business represents. Once you’ve decided on a successor, start working with them years in advance, if possible. Doing so will expose them to all the various aspects of the business — from the shipping docks, to balancing the books, to forming or solidifying important client relationships. Be the example they learn from at each step along the way.
4. Consult with the experts
Seek outside advice from professionals — e.g., lawyers, accountants, financial advisors, and business coaches.
5. Plan your exit
Before you pass the baton, make sure you’ve planned for your own personal future. When the time comes to step aside, try to do so gracefully. If you plan to continue as a consultant for the company, define what that work will be and how compensation will work.
6. Establish financial resources
Plan today for a better financial tomorrow. Reduce debt, set up a well-diversified portfolio, and look at investment opportunities that are independent of your primary business. There are a variety of tax advantaged retirement programs available that can help you maintain the same lifestyle in your retirement that you’re living now, provided you begin contributing to them well enough in advance.
7. Prepare the business for transfer
Take stock of those areas where your personality, skills, or influence are key elements of your firm’s success. Begin a program to transfer these activities to others within the company.
8. Review the business’s factors of success
You and your team need to determine your replacement’s exact role. Succession planning, as well as downsizing or expanding the business, all present unique opportunities to take a hard look at what you, the current leader, will do in both the near and long term.
9. Determine your business’s value
In order to accomplish this you need to know the difference between the various types of buyers active in today’s marketplace. Then codify the structure by documenting operating costs and procedures, as well as the management structure.