Suggestions for Succession Planning

by WOHe

While we may not want to acknowledge it, the day will come when
we’ll leave our kitchen and bath firm, and the business will have
to deal with our departure. How this event plays out will depend
largely upon the adequacy of advance planning.

To plan for the future, it’s important to evaluate the current
status of your business, planned and unplanned departures, and the
plan itself.

Current situation
The first decision you need to make is what you want to happen when
you leave your business. In many cases, the business is small, and
consists of the owner and immediate family. In this situation, the
long-range plan probably involves closing the business when it’s no
longer needed to provide an income for the owners.’

Businesses such as this will have little chance of survival
without the owner, who usually is a “one-person show,” accounting
for most of the key functions of the business. In this case, little
is needed in the way of a succession plan. What is needed here is
simply a liquidation plan.’

Often, however, you, as the business owner, have set your sights
on building a business that will have a life beyond your own
involvement in its day-to-day operations. If this is the case, you
need to bring together a group of people who are able to accept
responsibility for the various aspects of your business.

If these individuals are partners or family members, their
presence can imply a succession plan. However, if there are several
partners and/or family members, your departure could lead to a
fight for control, which translates to turmoil for your business
and its employees. Likewise, if there’s no obvious successor, an
unplanned departure will likely result in a paralysis of the
remaining organization.

In any case, as a business owner approaches retirement age, it’s
not unusual for others in the organization to be concerned about
what will happen to the business (and to them) when the owner is no
longer there to lead. At some point, the level of uncertainty can
cause some of your best employees to look for opportunities where
their own futures seem less in doubt.

Ready or not
Whether you’re planning a succession or a liquidation for your
business, you probably think of it in terms of a gradual process
that you will orchestrate. You believe the process will leave you
financially secure, and your business will either hum along without
you or be carefully tied up, with all of your clients and creditors
happy.

All too often, however, we’re not around to see this happy
outcome. When our departure from our business is unplanned, someone
else will have to take over in our place and carry out the
transition in our business. It is this situation that makes advance
planning so important.

As previously stated, if you have no plan for your business to
continue, your plan can be fairly simple; it should indicate how
projects are to be completed and creditors satisfied. This is often
handled with a will and some life insurance. If you plan to have
your business continue, however, you should be making changes and
plans immediately to make sure that it will happen.

The plan
Your succession plan should have three elements: organizational,
financial and ownership.’

For the business to carry on without the primary decision maker,
it’s important that the organization be developed to allow
delegation of various responsibilities. There are also some
organizational steps that will assist you in turning over some of
these tasks to other members of the staff. The first is to develop
a mission statement for your business that will serve as a compass
for everyone in guiding their decisions and actions. In addition,
form a management team of your senior people, and give them
meaningful roles in determining the direction of your business.

If there are partners or family members, make them a part of
this management team. It will be necessary to share all aspects of
the business and its workings with your management team if the team
is to participate in a meaningful way with its management. The
management team that you assemble should logically be responsible
for the functional areas of the business (sales,
finance/accounting, operations, etc).

You need to develop and discuss plans for your eventual exit
with this group. It’s important that your management group be aware
of the company’s current financial situation and any changes that
will occur in case of an “untimely” exit on your part such as life
insurance proceeds to the business or requirements for buyouts for
surviving spouses or partners.’

Your actual plan should have two alternative paths. The first
will allow you to leave the business for semi-retirement or
retirement. It may or may not anticipate continued ownership and
involvement by you or your family. It might also anticipate a sale
or merger of the business to partners, other family members or
employees. In any of these cases, the business’ value will only be
enhanced by its ability to function as a stand alone, without being
dependent on any one individual.

The alternative plan should anticipate a sudden departure on
your part. This element of the plan needs to identify who will be
“in charge” during a transition. Again, if there are partners, this
may already be spelled out in the form of buy/sell agreements among
the partners. The plan needs to indicate what role your spouse will
play in the event you should die or become incapacitated.

Finally, it’s important that these plans be recorded in writing,
and that everyone involved in carrying them out be familiar with
them. Furthermore, these plans need to be reviewed regularly to
make sure that changes in circumstances are taken into account.

While no plan can anticipate all of the possible conditions and
circumstances that your business will face as it moves into the
future, with or without you, having a plan will ensure that thought
has been given to some of these possibilities. Additionally, this
will provide guidance in dealing with whatever is
encountered.

Next Column: Employee Benefits: Get Bang for Your Buck!

Related Posts

Leave a Comment

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More