Successful business owners plan for the future. But in doing so, not all of them plan for the unexpected. If you’re an owner or partner, what happens in the event of your untimely death? Or if you suddenly become incapacitated in a serious accident? Without a plan for what to do next in situations like these, your business could be in serious jeopardy.
This is where having a business succession plan can make a difference. A well-designed plan will set forth what happens when a business owner or partner dies, loses capacity, retires, or undergoes a major life change that might upset the company. A business succession plan can also minimize potential losses and risks that could otherwise threaten the business.
What Makes Business Succession Planning Essential?
Business succession planning is essential to prepare for the death or incapacity of company leadership. But the right plan can also address other, less serious events. Life changes are inevitable; the people who run your business won’t be there forever. They could one day decide to retire or leave the company for a competitor.
Without a plan in place, the sudden departure of key personnel could endanger the business. The company may be without a clear or competent leader. Whoever steps up might have no idea what to do next. The consequences could include:
- Organizational disarray
- Internal power struggles
- Lost productivity and revenue
- Missed business opportunities
- Decreased consumer confidence
- Expensive and distracting litigation
A knowledgeable North Carolina corporate and business law attorney can mitigate these and other potential issues by creating a business succession plan. A comprehensive plan can accomplish the following objectives, among others:
Avoiding disputes from arising within the business. If you’re an owner, your sudden departure from the business could trigger an internal power struggle. This will only hurt your company. A succession plan will clarify who is to assume authority in your absence. It can also provide for education or training so whoever replaces you is ready.
Retaining essential employees. When someone departs a company, key leaders are often tempted to leave as well. A succession plan could provide incentives to keep these individuals from doing so. The plan can also require these employees to sign non-compete and confidentiality agreements in the event they leave anyway.
Reassuring investors. One of the most important groups of stakeholders is your company’s investors. They are more likely to stick with the company if they understand how exigent circumstances are to be addressed. Assuring investors will likely inspire confidence in other stakeholders.
Minimizing unnecessary stress. Not having a succession plan will cause immense amounts of stress for other owners and partners who have to scramble to replace you. This can have devastating effects on the company from top to bottom. Avoiding this stress keeps the owners and partners focused on successfully running the company.
Protecting future generations. For any business owner, growing value to pass on to future generations is the ultimate goal. For family-owned businesses, making sure the value of the family business is protected in times of transition is essential to achieving that goal. Succession planning is often done in tandem with estate planning.
How Patrick, Harper & Dixon Can Help
A skilled business and corporate law attorney can help you execute a succession plan. Your lawyer will discuss the following specifics of the plan with you, among others:
- What will happen to the ownership of the business after a major change?
- How will the company ensure cash flow so expenses continue to be paid?
- How will ongoing business relationships be preserved?
- How will the institutional memory and traditions of the company be protected with new leadership?
- How do these business issues fit the owner’s estate planning?
You’ve worked too hard to build your business, you should not leave it vulnerable to the inevitable changes of life. Without a plan for succession, too many important decisions will be left in the air, and possibly decided by individuals you never intended to have a role. Let the corporate and business law team of Patrick, Harper & Dixon help draft a careful business succession plan for your organization. Call us today to get started.