Sound planning is essential for the success of any business. It must account for the future of the business, including what will happen to the company in the event of an owner’s or partner’s death, serious injury, or retirement. Without the proper leadership in place, the fate of a business may be in the hands of unintended individuals. A business succession plan can reduce the l position a company for long-term prosperity.
Business succession planning is essentially estate planning for a company. A well-developed plan can clarify who takes over the business in the untimely departure of key leadership, thereby mitigating potential losses. Patrick, Harper & Dixon’s Business Transactions & Corporate Law attorneys are prepared to develop and implement a customized plan that incorporates your company’s values and interests.
What Is A Business Succession Plan?
Eventually, the owners, partners, and top leadership of a business will leave for a variety of reasons: illness, incapacity, death, retirement, or working for a competitor.
Any departure from a business can result in financial and legal trouble. If a business has no clear leader, whoever steps in to fill the vacuum may have no plan for moving forward. Internal fighting, lost productivity and revenue, and possibly even lawsuits, can result. Transition periods are disastrous to many companies and often lead to their failure.
A business succession plan can avoid or mitigate the risks of these and similar problems. The objective is to set forth clear guidelines for handling a number of exigencies that arise when essential personnel leave a company. This, in turn, helps facilitate a smooth transition from old to new leadership.
What Should Be Included In A Business Succession Plan?
The exact plan your business will adopt depends on the company. Most plans, however, will include the following elements (among others):
Process for selecting a successor. Choosing the individual who replaces the departing owner, partner, or executive is a process. Many factors have to be taken into account, including the type of business; whether it is family-owned, closely held, or public; and the traits, skills, and experience required for a successor.
Transition guidelines. When someone important leaves a business, the organization enters into a transition phase. How this delicate period is handled can make or break a company. Guidelines must be established to facilitate the transition, including the identity of the person (or persons) to be in charge. Benchmarks and a robust paper trail can ensure progress is being made according to plan.
Exit strategy. This element is particularly useful for someone who is planning to leave the company. Owners, partners, and other important individuals cannot simply walk away from a business. They have investments and other interests wrapped up in it. An exit strategy lends itself to an amicable parting of ways.
Buy-sell agreements. When an owner or partner leaves the business, he or she wants to receive fair value for parting with a stake in the company. A buy-sell agreement proves useful in this regard. The agreement can dictate when an owner or other individual can sell his or her interest and on what terms. It may even set the price or method for determining the price, along with who has the right to buy the interest.
Business valuation. The time may come when an owner wishes to sell his or her business (not just an interest in it) to someone inside or outside the company. A valuation will need to be conducted to ensure you receive a fair price for what you are selling. This element is also useful if there is more than one owner of the company and all decide at one time to close and sell it.
Emergency plan. An owner or other important individual could suddenly become incapacitated. An emergency plan can describe what happens next, including who steps in for the individual while he or she is unavailable. If the emergency becomes extended, or ultimately leads to the death of that individual, additional steps can be clarified.
Other issues are also relevant in a company’s succession plan. Reviewing all of the issues with a business attorney ensures that the ultimate plan reflects the values of a particular entity.
What Are The Goals Of Business Succession Planning?
As you develop your plan, consider the following objectives:
Preventing internal disputes. Your plan should lay out who will assume authority in the absence of a key individual and how the transition to new leadership will take place. This will help avoid destructive power struggles.
Retaining essential personnel. When one individual leaves a company, others often follow. Your business succession plan might provide incentives to retain these important leaders and employees.
Reassuring stakeholders. Investors and other stakeholders will have more confidence in your company if a comprehensive succession plan is in place. When the time comes to use it, those stakeholders are more likely to remain with your business.
Protecting traditions. New people who enter your company naturally bring their own ways of doing things. The succession plan can ensure that important traditions are protected.
Reducing stress. Transitions can be stressful. Failure to plan can result in chaos. A well-designed succession plan reduces stress so your company stays focused on success.
Contact Our Hickory Business Succession Planning Attorney
Change is inevitable, but it doesn’t have to jeopardize your business. Taking steps now to protect what you have built can save hardship later. Let our team show you how a business succession plan can enhance the value of your company. Call Patrick, Harper & Dixon today.