Across the globe, entrepreneurs of both large and small firms are always hesitant to undertake succession planning. The unwillingness to having a succession plan is reasonable, given the number of emotional decisions the owner has to make.
Personal involvement and the involvement of other family members are among the key factors that one should consider. Coming up and implementing a succession plan involves making brutal and honest decisions. This has prompted owners of many family businesses to engage in formal methods to solve their succession disputes.
A formal plan involves a written strategy and how to invest in all the liabilities uncovered to protect the business’s future from collapsing. Below are four steps to developing an official succession plan for a family business.
Illustrate the company’s future and the owner’s involvement
A successful owner of any enterprise must always know where the future of the company’s lies. If the company relies on the owner for unique skills, it is evident that the company might shut down someday if there is no one with the same abilities. If the skills are transferable, the owner can opt to transfer the company to other family members or sell it to outsiders or employees.
Identify the future successors
This implies identifying prospective owners and understanding the current employees who can be the next executive and key managers. However, the owner can always recruit other talents if the current employees lack leadership potential.
Plan for emergencies
When coming up with a succession plan, it advisable for the owner to leave room for what-if scenarios. What if the successor dies or becomes disabled? What if the successor gets divorced and has other family members who want their share of the company?
Formalize the plan
The owners should always create supporting documents for the succession plan, such as:
- Shareholder and buy-sell agreements
- The legal power of attorneys
- Principal contracts and compensation agreement
Besides that, the owner should always ensure that the following records are accessible when needed:
- Assets title deeds, rental contracts, and leases
- Financial records mortgages
- legal will
The Bottom Line
A successful business planning requires adequate and careful preparation. Furthermore, business owners seeking an equitable and smooth transition of their interest should find an experienced and competent advisor’s services to help them in the succession plan.