How to Create a Business Succession Plan for Your Small Business
By Space Coast Daily // May 14, 2021
Owning a business is a dream for many people. If you do end up going out on your own and starting your own small business, it will likely be one of the life achievements that you are most proud of.
However, there will eventually come a time when you no longer want to be as active with the business and would like to take a step back. While selling the business is one option, another is to pass the ownership and leadership of the company onto someone else.
When you are going to do this, having a formal and thoughtful succession plan is very important. There are several tips that should be followed when you look to create a succession plan for your business.
Identify a Successor
When you are going to create a succession plan for a business, one of the most important things that you will need to do is identify a successor that can take over the company for you in the future.
A successor should be someone that is experienced with the company, is respected and has leadership skills, and would like to be the owner in the future. It is important to discuss your succession plan with the potential successor early on to gauge their interest in taking over the company. They will also need to be involved in the rest of the succession plan formation.
Create a Timeline for the Transition
An important part of any succession plan is to create a timeline. The succession plan will include transferring legal ownership and daily responsibilities to the other party.
Due to this, it can take years for this to be done the right way. Due to this, you should create a formal succession timeline that you can follow to include when you want the transition to begin, when you want the process to be over, and what other milestones will need to be met along the way.
Develop Future Compensation Approach
As you are going to transfer the business to someone else, you may be wanted to be compensated for the company that you have developed. If you have built a successful business that earns positive cash flow, there could be a lot of value.
The succession plan should include a strategy for how you will be compensated. This could include providing you with a lump sum sale price, some continued level of stock ownership, salary or consulting fees paid from the company, or a combination of all. It is important that the compensation is discussed with the successor early on in the process.
Being the Operational Transition
Once you have found a successor and have identified a timeline, it is important that you start the operational transition. In most cases, it would be a good idea to start the transition before you make a formal announcement to other employees or clients.
This will ensure that everyone has more time to get comfortable with the successor before the announcement comes, which can help to ensure a smoother overall transition. You should slowly integrate the successor to ensure they understand all areas of the business and are comfortable making important decisions. Giving the successor increasing responsibility along the way can also act as a good trial run for all parties to ensure the successor is the right fit for the role.
Provide Right Notification
Once you have determined that the successor you have chosen is the right fit, it is important that you provide the right notification. There are many parties that should be notified of the succession of the company including your other employees, customers, vendors, legal support, bank lenders, investors, and any other stakeholders. It is important that you provide this update with some advance notice to ensure they are able to complete any necessary work prior to the succession date.
Complete Necessary Legal Work
During the transition of the succession plan, there will eventually come a time when the official transfer needs to take place. When this occurs, there will be legal work that will need to be completed. This can include altering ownership certificates, receiving approval from lenders, investors, and other stakeholders, and ensuring that any purchase and sale or other compensation agreements are done the right way from a legal perspective.
When you are looking for a new attorney to help you with the creation of your succession plan, contacting a New Albany business lawyer is a great option.
Your attorney can provide full consultation and legal representation to ensure that the succession plan that you want is in place and binding in the future. This will help to ensure that the legal process goes smoothly, which will provide you with more time to ensure the company is prepared for the transition and that the organization remains successful following the succession.