5 Tips for Building Success into Your Business Succession Plan

“In order to design and implement a successful business succession plan one must cover a wide variety of specialties, not only including accounting and legal expertise, but also investment banking advice, valuation estimates, family business assistance (to deal with family tensions and conflicts), and, last but not least, insurance matters.” (Burr & Forman)

Whether you’re planning for the next venture or just planning to get out, sooner or later you’ll need to transition your business to new owners.

A successful transition, like a successful business, doesn’t happen without planning. For your reference, here’s a look at five tips for putting “success” into your succession plan:

1. Plan early and often:

“By creating a business succession plan early on in a business’s life, you, as the business owner, establish it as part of the critical foundation for the business and its success, hopefully avoiding an unnecessary scramble at the end of your career to figure out what you will do next. Reviewing a business succession plan should be as routine and fundamental as reviewing a business’s marketing strategy or a budget, and by establishing those habits early on, a business is more likely to keep its focus and successfully manage its succession plan over time.” (Burr & Forman)

2. Take care to leave the business in the right hands:

“Great leaders care about the legacies they leave. That legacy is more than the results you produce while in the job. It includes what you did to ensure that your company or organization was in good hands after your departure.” (Ogletree Deakins)

3. Consider benefits for everyone with a stake in the outcome:

“Many business owners have some children who both work in the family business and some children who work outside of the family business. The business owner should consider how the children who are not in the business will be treated. One end of the spectrum is to do nothing. The other end of the spectrum is to provide some benefit to the other children, whether through a lifetime gift or a transfer at death, of the owner’s other assets so each of the children is treated ‘fairly.’” (McNees Wallace & Nurick)

4. Expect the unexpected:

“You will want to have a mandatory purchase of your ownership interest – either by the business or the surviving partner – if you should die. Typically, in a cross‐purchase agreement, you will provide for the cost of this mandatory purchase by having key person life insurance in place to insure against the death of the other partner. And the other partner will purchase life insurance covering your life. That way, if either of you should die, the surviving partner will have insurance proceeds to purchase the deceased partner’s business interest from his or her surviving spouse, children or trust, if one is in place.” (Daniel Schramm)

5. Take a tip from the big guys: communication is crucial to a successful leadership change:

“Executive leadership changes have a profound effect not only on public perception, but on the opinion of other audiences as well: namely shareholders, the business press, competitors, and potential customers or clients… Though private companies do not face the same regulatory and market pressures to disclose facts [as public companies], succession planning is valuable for them as well, allowing them to mitigate the risk of uncertainty over who will take the top post…” (Greentarget)

The updates:

Further reading:

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