Do you have a business succession plan?
A family business carries with it the legacy of hard work and tradition. It may have been in the family for generations, or it may be a recent start-up. Either way, you did loads of small business planning when you started it. But the question is inevitable: who will continue building the legacy and growing your small business? The fact is, only 30 percent of small business owners have a business succession plan. If you own a business, do you know the first step in succession planning? If you’re not sure, read these five tips to help ensure that handing off your business will be as smooth of a process as possible.
The First Step in Succession Planning
Have you identified a successor? This is the first step in the succession planning process. Non-family owned businesses can typically carry on without the owner — the benefits of diverse management and ownership. But if your business is a family one, everything tends to be linked to one person — the owner. Making the decision as to who will take over is a difficult one, as all that you have worked to build, such as goodwill in the community and clients, will now have to be transferred to someone else.
When looking at potential successors, you have to ask yourself: do they care about the business? Business acumen is important, but won’t be worth much if your potential successor lacks passion. Taking time to identify a successor means taking a hard look at their skills, which can be fraught when you’re talking about a favorite relative. Separating emotion from the business side can be a tough but necessary step. Making these decisions early also means that you will have time to train your successor on the ins and outs that may be second nature to you, but bewildering to someone who isn’t used to being at the helm. Another advantage to early planning; having an exit strategy gives you time to transfer you assets in the most tax-effective manner. Tax and estate laws vary by state, and can dictate how ownership is transferred. In this case, expert legal counsel is a must. Which leads us to…
Making Your Small Business Succession Plan Official
Once you have identified a successor, you will want to make sure his or her next steps — and yours — are clear. Again, putting emotions aside will be the best thing for you and your family, especially when an entire business (and sums of money) are at stake. Drawing up a contract in conjunction with legal counsel will be an important step in defining what your business succession plan will look like. It not only lays out a plan for your family, but a succession plan reassures stakeholders and/or investors that plan with clear expectations in place when you hand off your business. Again, involving legal counsel can also help you avoid tax headaches down the road. This is not the time for DIY!
Wise Advice on Succession Planning - Don’t Micro-Manage
Naming your successor is a huge step. Now that you’ve gotten this far, you may be tempted to manage the rest of the chain of succession. This might not be the best idea, and sometimes it’s hard to know when to let go. By choosing a team for your successor, you aren’t necessarily doing them any favors. Besides showing a lack of confidence in their own judgment, you are determining their future work environment for them. If you trust them enough to run your small business in your absence, you should trust them enough to let them choose their own team. They might even have insight that you may lack from years of being the boss.
How to Communicate a Business Succession Plan
Don’t make decisions in a vacuum. This is especially important for family-run businesses. Do you have children with expectations of running the business someday, or are they more interested in pursuing other careers? If not a child, who will be in charge? Go over your plan with them, and be open and up-front with your expectations and theirs. You should determine how business information will be shared with family members, and if they will still be able to pursue their personal career goals through the business. If you have partners, you will need to determine if a buy-out is in the future, or if your shares will be moved to another party.
What Will Your Future Role in the Small Business Be?
In a plan with many hard decisions, perhaps the most difficult is deciding what your role will be once you transfer your business to your successor. No longer managing the day-to-day details of your business can be tough, and it is something you need to consider. Will you continue to be involved on some level, and how involved will you be? If you sell your company outright, you might have less involvement than if you stay on in a more advisory role. Each business is unique, and you will have to have a serious discussion with your family/business partners to determine which path makes the most sense for your operation. How will you be compensated? Making sure both you and your successor are both clear on what role, if any, you will play in the company’s future will make for a much easier handoff.
Your business is your legacy, and complicated emotions can be involved. By controlling the process and timing of your exit, you give yourself time to set personal financial goals, maximize your company’s value, and promote the long-term growth and survival of a business that is so much more than just that: it’s a legacy. And if you need help making sure that your business will be in good hands, your local Farm Bureau agent can help.
Learn more about Farm Bureau’s Business Succession Planning services here. Because when it comes to a business succession plan, there is no time like the present.