When business owners know that it’s time to pass their company to the next generation, it is important to write up a business succession plan. The stakes of such a transition are too high to simply leave to chance. The next generation needs guidance, which can be detailed in the plan.
Business succession plan construction is a complicated process. As a result, those who are approaching it for the first time tend to have many questions that they need answered before they’ll feel comfortable moving forward. These are three of the most common concerns that business owners voice when grappling with this process.
What is a business succession plan?
A business succession plan serves as guideline for how a change in leadership will happen. It is best for a business if this transition goes smoothly, and a plan helps to ensure that that happens.
For example, business succession planning where a parent is leaving the business to an adult child may involve bringing that heir into the business years before they are actually going to take over. They can then spend years working directly with the owner and learning on the job. When they finally do take over, a legal structure is in place to allow them to do so efficiently, and they already have most of the skills and abilities they need to carry on running the business.
A succession plan can also define the roles that people will have in the company when the current owner moves on. This kind of clarity can be especially beneficial when multiple heirs are going to take over as an ownership group. They’ll need to know about their roles, responsibilities, rights, obligations, payment structures, ownership percentages in ways that minimize the likelihood of confusion and/or in-fighting.
When an owner can’t work, what happens?
One of the benefits of business succession planning is that a plan will be in place if the owner can’t work for some reason. They may become incapacitated due to an injury or an illness, for instance, or they may pass away. The plan will tell their family and the next generation of business owners how to proceed. In some cases, the business may be sold or new partners will be brought in. Every situation is unique, but having a plan in place helps tremendously if the unexpected occurs.
What happens when owners want to sell?
An owner may want to sell their share in the business long before they pass away, which they can do with a buy-sell agreement. They can also potentially pass their business directly to someone of their choosing, such as one of their heirs. It’s important to get a framework in place to show when the next person takes control, if any financial assets have to change hands, what the shift in circumstances will mean for other employees or executives at the business, etc.
At the end of the day, having a comprehensive business succession plan in place can be highly beneficial for a business owner and their family members. All involved need to know about the legal steps they should take when a transition become necessary and seeking legal guidance is a good way to start seeking that clarity.
