When someone owns a business, they need to think about the future of the company. If the owner of the company experiences some kind of medical emergency or dies earlier than anyone anticipated, the company could end up at risk of dissolution or failure, and the beneficiaries of the owner’s estate may find themselves fighting with the managers and employees at the business about its operations.
Business succession planning can ease the pressure on an organization during times of transition and can give an owner or executive a sense of security about the company’s future.
What constitutes business succession planning?
Some people confuse succession planning with estate planning. They think of it as a means of ensuring the transition of ownership from the current owner to the party that will inherit their interest in the property. While ownership is an important consideration, who runs the business in the current owner is unable to do so is also an important consideration. Business succession planning involves naming candidates for that role and detailing the requirements of the position for whomever may assume it in the future.
Is there a plan in place for an executive or owner’s death or disability?
One of the most common oversights related to succession planning relates to those who only have documents in place with instructions related to an owner or executive’s early passing. However, someone could end up unable to manage a business because of long-term incapacitation caused by unconsciousness or a reduction in functional or cognitive ability.
In addition to documents discussing the redistribution of someone’s ownership interest and authority in the event of their death, a succession plan typically also needs to address what would happen if someone has an emergency that leaves them unable to run the business and should include documents like powers of attorney that facilitate the transfer of power.
What happens in the event of a voluntary exit?
Often, those transitioning out of a leadership role at a company will do so with adequate time to prepare in advance. Those who want to retire or move to a job at a different company may need to provide a certain amount of advance notice to the organization and may need to provide transition support, including the process of training their successor.
Organizations that have clear expectations regarding the creation of a succession plan and its implementation after the death or incapacitation of an executive or owner will have an easier time adjusting to unexpected occurrences that could potentially force the closure of the business.
