Do you really have a succession plan for your business? If you left work today and for one reason or another (retirement, disability or death) never returned to your company, what would happen? Does everyone know who would be in charge and who would make the decisions? Does everyone know who would manage and lead the company? Has a leader been selected and trained?
Who would own the stock of the company upon your death? Would it be your wife, or your children, or a trust for the benefit of your children? Is this what you want? What does your will say?
Do you have any shareholder’s agreements or other documents that place the ownership, management, and control of the company in the hands of the people who you would want to manage and control the company in your absence? Who would deal with the major customers you have always kept as “house accounts” and that you have the closest relationships with?
How about your star salesman who accounts for one third of the revenues of your business? Would he now join the competitor who had earlier offered him an ownership opportunity? Would you keep all of your key employees? Who would deal with the bank?
If you left work today and for whatever reason (retirement, disability or death) never returned to your company, would your company not only survive your departure but also thrive after you were gone? Is there “anything” that you need to do to be absolutely certain that it would thrive without you?
If you are honest with yourself, you will probably acknowledge that there are some things that need to be addressed before that happened. But you say, “Well, I hear you, but that type of thing would hardly ever happen and if I did die or become disabled and never returned to my company, I have plenty of life insurance and disability insurance which would protect my family.”
I hear you…but what if, instead of dying or becoming permanently disabled, you wait until you are ready to retire before addressing these issues? Will you be able to retire when you want to and, if so, will you have the necessary financial resources to live the way you want to live in your retirement? Or will you have to work until you die because you have not planned for your own succession so that your company can thrive without you?
What we are talking about is succession planning. What is succession planning? It is part of your strategic business plan. It’s a plan for how the business survives separation from the owner or founder—whether because of retirement, disability or death. It involves planning for the continuation of your business after you leave.
Three things have to be planned for: 1) the transition of ownership; 2) the transition of management and control of your business; and 3) the particular terms and conditions of your “exit” from the business.
Succession planning is a process that all owners of privately owned businesses will ultimately have to deal with. There is no “if” in succession planning. There is only “when” and “how.” When and how will you deal with or have you dealt with your succession plan? Again, this process not only involves planning how your business will survive you, but it also involves how your business can thrive with or without you.
Succession planning is one of the greatest unmet needs of business owners. According to a U.S. Trust survey, 50 percent of closely held business owners would like to transfer their businesses to “insiders” (family members or key employees), but only about 16 percent are able to do so. The others end up selling to “outsiders,” or liquidating their business for the value of its assets less its liabilities—usually a nominal amount.
Why is that? Why can’t more business owners accomplish their objectives? In most cases, it is simply because of poor planning (or no planning) and the failure to identify and prepare true successors who are ready, willing and able to take over. In fact, statistics show only one third of the “most successful” businesses have succession plans which address all of the issues set forth above.
In next month’s article, we will address some of the prerequisites for a successful succession plan and begin to discuss the particulars of a succession planning process for business owners.