Most business owners devote their attention to immediate and pressing issues like good cash flow and a balance sheet that’s perpetually in the black. Retirement is like a distant mirage, and besides, the thought of handing the reins over to someone else can be both anxiety-inducing and daunting. How could anyone possibly take your place? How could anyone ever know how to do everything that you do?
If this sounds like you, rest assured that someday you will want to retire or, at the very least, lessen your involvement in day-to-day operations. Putting together a solid business succession plan is a crucial element in the continued success of the company you worked so hard to create.
Here are six tips that can make that possible. Some of them apply to all business types, from sole proprietorships to LLCs, while others are more suited to companies with multiple partners or owners. All of them can help ensure that when the time comes to pass on the mantle, it lands on strong shoulders.
- Establish a Strong Foundation
A successful transition starts with a strong foundation. Too many hands-on owners structure their company so that it depends entirely on them to run successfully. Once they step out the door, everything collapses. Instead of managing everything yourself, establish and implement processes that your eventual successor can easily follow.
- Identify Key Roles
If you wear many hats on the job (e.g. marketing, procurement, payroll, etc.), you want to turn them into job titles that need to be filled before you depart. Once you’ve identified the roles, determine what skills are required to fill them. Perhaps you have existing employees who can be transitioned into these roles. If not, think about hiring people who can, at first, assist you. When you leave, they can assume full responsibility for these various duties.
- Document Your Plan
Document how you intend to transition the company. Your outline should include creation of a buy-sell agreement, acquiring all necessary insurance, and reducing tax implications whenever possible. Before signing off on it, make sure that the plan is in accordance with any estate planning documents you have, such as your will.
- Create a Solid Buy-Sell Agreement
If you have partners in the business, a buy-sell agreement allows each owner to specify what will happen to their shares in the company if a specified event such as death, retirement, or disability occur. If you pass away before you can retire or sell, the agreement can guarantee your family both a predetermined price and a buyer. If you retire or become incapacitated, your shares have an agreed-upon price.
- Empower Your Successor
If you already have a suitable successor in mind, such as a key employee or family member who helped you build up the business, start grooming them for the responsibility early on. “Ready-now” successors don’t exist—even your ideal candidate will need some training and practice runs to prepare them to step into your shoes.
- Revisit the Succession Plan
Once you’ve created a viable plan, don’t simply place it in a safety deposit box and forget it. Life is full of unexpected changes: your successor of choice can change their mind or leave the company, tax laws may change, and other events can happen that make revision advisable.
For assistance in putting together a legally and operationally viable succession plan for your business, contact Rosen Law today. We will help you develop a plan that avoids future ownership or control disputes while honoring your estate planning needs, retirement plan objectives, and goals for the business.