It’s Not Too Late To Start Your Succession Plan
Succession planning is a critical step in business ownership – particularly if you own a family business. In fact, if you hope to get the maximum value out of your business, you’d better start focusing on your buy-sell agreement. Statistics have found that about 40 percent of closely-held businesses fall apart before they are even passed on to the second generation; and the failure rate for third-generation businesses is a dismal 90 percent. But it doesn’t have to be that way – as long as you take time to put a plan in place with a well written buy-sell agreement.
Check out these articles to learn more about succession planning.
As the old saying goes, when you fail to plan, you plan to fail. Did you know that only three in 10 family-owned businesses have a written, formal succession plan in place? Another statistic tells an equally sobering detail: 12 percent of family-owned businesses do not survive past the second generation of ownership, largely due to poor succession planning.
Every closely-held business owner will eventually be faced with succession planning issues. It is imperative that a proper plan is developed that not only takes into consideration the wishes of the owner, but also his or her family.
If you want your business to continue once you leave, it’s not such an easy process. There are complex legal and financial issues to figure out (estate plans, retirement needs, legal documents, etc.) and equally complex soft issues (choosing the next leaders, sibling rivalry, giving up control, etc.). You’ve got to figure out a way to leave and not kill the business.
A succession plan isn’t just a matter of saying, “I’m leaving the business to John, Jr.” Proper succession planning requires great skill in the areas of taxation, valuation, mergers & acquisition, family relations, evaluation of talent and a host of other items. In addition, it requires the business owner to confront some personal or family issues, like deciding if a family member is really competent to run the business, which most people might rather avoid.
Your succession plan is a fluid document. It’s a fact of life that things don’t always go as you planned. Economic conditions may change, new regulations may impact your products or services, key personnel or family members may leave or change their mind about their role.
A company’s succession plan is an organizational development tool used in preparation for a planned or unplanned absence of the owner or director. This absence could result from death, disability or by choice (retirement). A succession plan is most relevant for small businesses or non-profit organizations whose continued success relies heavily on one owner, director, etc.