Why should you draft a business succession plan?

hands of family business where they are doing business succession planningBusiness succession is a long-term plan that many Wisconsin business owners neglect—and with dire consequences. Our state is certainly not alone; a recent survey done by Nationwide stated that as many as three out of five business owners across the United States have not initiate the business succession process.

While it may not always be pleasant to think about the unexpected illness or personal circumstances that can pull a business owner away (though it can be enjoyable to consider retirement), the effort can be incredibly valuable when those situations occur. Business succession plans can be vital for the short-term (such as when an owner is ill) and long-term survival of a business (after a partner’s retirement). The effort can also be useful for selecting long-term strategies that can make the business transition financially feasible.

The business succession process inevitably boils down to the question, “who is the next owner/partner best for the business?” On a family farm or in a family-owned process, the answer (or answers) might be obvious as the next generation has indicated their interest. Non-family managers might also be candidates; identifying those parties is vital to the success of the business. If the next owner is actually numerous parties in a partnership, it can be helpful to identify their roles and put the financial details of the transition down on paper.

A good succession plan also addresses the issue of continuity, both during a short-term emergency (i.e. illness, personal emergency, etc.) and when an owner or partner decides to leave the business. This aspect of the plan addresses the interim and transitional situations and how to keep the business running—and succeeding—for the long-term.

By undertaking the business succession process early, areas of growth can also be identified and addressed. Put simply, what areas does the next generation of leaders need to learn to effectively manage the business? For continuity and success, it’s best to train and learn earlier so the next leader—or group of leaders—can gain experience now, such as when the owner wants to step away for a vacation or family need.

Another reason for tackling business succession early is the sheer amount of time it takes to develop and finalize a business succession plan. The planning process involves many different aspects that should involve the consulting of key financial consultants and legal experts. The process involves multiple steps that can take years to completely address and finalize.

Since lawyers are an integral part of ensuring that the business succession plan meets all legal criteria, it makes sense to start by contacting an experienced local business lawyer. A business lawyer can ask all the right questions and create a custom (and legally sound) business succession plan that contributes to success long after the owner or partner has stepped away.

The materials on this website are provided for informational purposes only and do not constitute legal advice. These materials are intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results. Transmission of the information is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver. You should not act or rely on any information contained in this website without first seeking the advice of an attorney.

4 Tips for Smooth Business Succession Planning

office workers hands on top of each other all invested in business succession planningBusiness succession planning is an integral—and sometimes “sticky”—part of business simply because of the personalities and family dynamics that come into play during the process.  While family dynamics may complicate the process, don’t let the inevitable personality clashes hold or delay your transition and planning; this course of action is an important part of business when a family member or partner is ready to retire or take a lesser role within your business.

Recognize the importance of the process.

Business succession planning is about more than appointing the successor or successors of your business.  A solid business succession plan ensures 1) the transition of parties is set and legally sound; 2) financial details are handled to ensure the succession of partners can occur (without fear of an external takeover); 3) to ease the process should any partners pass away while in business; 4) an owner can exit the business, or take a lesser role, while having their financial investment recognized.  While it’s easy to dismiss the process as a matter “for another day,” initiating and following through with a business succession plan is an essential part of running a business.

Don’t wait to start your business succession planning.

No one can predict the future; this is especially true in business.  Start your business succession planning by discussing the future of your business with all parties that are affected by the transition—including parties that are not interested in carrying on the business.  This could include all children of the owner, partner spouses, top company managers, and any other loyal employees INVESTED in the company.  Once successors have been identified, and all parties vested in the transaction are comfortable with their future partnership, it’s time to initiate the process.

Be clear about expectations.

Both on the financial and human resources side of your business succession planning, be clear about the expectations during the transition—both for the owner and successors.  Communicate clearly and openly with all parties.  Set a clear time frame and communicate with all parties expectations during this period.

Consult an attorney.

To ensure that all legal and financial aspects of your business succession planning are anticipated and documented, consult an experienced attorney.  Every business succession plan is unique; there is no “one size fits all” plan because the organization, finances, and parties involved are different.  An attorney can customize your plan to fit where your business is at now, and where you want it to be in the future.

The materials on this website are provided for informational purposes only and do not constitute legal advice. These materials are intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results. Transmission of the information is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver. You should not act or rely on any information contained in this website without first seeking the advice of an attorney.