Welcome back to this series on succession planning.
Part 2: Important planning considerations
Before you draft a succession plan, you’ll need to spend time giving careful thought to your personal and business long-term objectives.
Ask yourselves these preliminary planning questions so you can create a succession plan that is in harmony with your personal, lifestyle, financial, retirement and business goals.
Personal questions
- What is your main priority when succession planning? Do you hope to maximize retirement income? Keep the company in the family?
- Would you prefer to maintain a part-time role in your business when the day comes – or completely step away?
- What is your preferred timeline for your exit?
- What are your desired terms for the payout – a one-time payment or regular payments?
Business questions
- What is your long-term future vision for your company?
- Who might take over as your successor – a family member, business partner/employee or outside buyer?
- How could current positions in your organization be redesigned to best meet your vision for the future?
- What are your plans for the proceeds if you sell your business?
Choosing a successor may require reshuffling some responsibilities in your company. Draft an organizational chart for your succession. If you offer a senior manager a promotion, who will take her place?
Planning activity: Addressing risks
Contingency planning ensures your business can carry on smoothly, no matter what surprises life has in store.
Brainstorm a list of risks that could impact your succession plan and how you want to address them. For each risk list:
- Succession risk: What can go wrong? What is the potential impact to your business?
- Likelihood: Highly Unlikely, Unlikely, Likely or Highly Likely.
- Impact: High, Medium or Low.
- Contingency: What will you do if this risk happens?
Do you own a family business?
A major reason businesses don’t survive comes down to family dynamics. The desire to avoid conflict can pose a serious challenge for small business owners who feel caught between making the best decisions for the company and keeping the peace.
If your family business is struggling with this issue, look for an objective third-party perspective from a business consultant or financial planner. Guidance from a neutral professional whose focus is strictly the bottom line can help facilitate difficult discussions.
Will you transfer ownership or sell?
Business owners should carefully weigh the implications of transitioning the business to a family member.
Although it may be a parent’s dream to transfer ownership to a child, have an open discussion first. Your child may have other career plans. In this case, sharing the sale proceeds may ultimately be a better decision.
Communicating early and often about your plans for the family business will go a long way to avoiding tension, anxiety, and disappointment when it’s time for your succession.
Family business succession tips:
- Create a conflict-resolution strategy when facing difficult business decisions.
- Be honest about expectations and take care that family time doesn’t always include business talk.
- Consider a phased exit if a family member isn’t ready to take over when you’re set to exit.
Factors such as age, desire, skill set, management experience, family dynamics and the current state of the business should all be considered when deciding how the business will be led when it’s time to exit.
If you are planning your business succession (which you should be) stay tuned for the next part.
