While it’s not fun for a business owner to think about the impact their death or a disability would have on the company, it is nevertheless important to create a succession plan sooner rather than later. The BBB outlines five steps to create a solid succession plan and ensure the stability of the business if something unexpected should happen.
A business succession plan is extremely vital to ensure the stability of the business and avoid paying to many taxes or damaging the family finances, but many small business owners lack one.
“While your retirement may seem far off, you should plan for the unexpected by taking the time to create a thorough succession plan,” said Alison Southwick, BBB spokesperson. “Waiting until retirement to think about the next generation of the business puts both your family finances and the future success of the company at risk.”
BBB recommends taking the following steps to create a cohesive and comprehensive succession plan:
Have the tough conversations with family and partners.
When beginning the planning process, get the thoughts and opinions of family members and business partners on their future involvement with the company. This will give you a better idea who really wants to take on the challenges of the company and who might prefer a different path from the family business while perhaps maintaining an equity stake. Also, circle back around and make sure all interested parties understand the succession plan after it is finalized.
Get professional help. A succession plan isn’t just about naming an heir; it’s also a matter of navigating tax laws and minimizing the financial burden on family members. The financial aspect of a succession plan can be very complex. An attorney and/or financial planner can walk you through the process, make sure you’ve tied up all loose ends and help you ease the potential financial strain on family and the business.
Think about the staff. A succession plan isn’t just about tending to finances and ownership. It is also about management and making sure the company can run smoothly in your absence. Make sure that your staff is trained to carry on without you—this includes the high-level strategic plan and the day to day basics of making the business work. Consider creating basic succession management plans for key staff to ensure continuity in service and productivity should someone else depart.
Think about the customers. Customer loyalty for a small business often rests heavily on the owner. Customers might head off to the competition if they think that the company can’t carry on without you. Consider how you can make the transition seamless for customers and not lose the trust they have built in your company should you leave. Encourage relationships between customers and other staff so that they know that the business is more than just you.
Update the plan every few years. Revisit and revise the plan every few years. Make sure it continues to reflect the current status of the business as well as your family situation.