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.

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