Running a business is time consuming. The present and immediate future can demand so much of your attention that succession planning may be something you constantly shove to the back burner.
Procrastination, however, can prove costly for you, as well as for your family and employees, especially if an unexpected accident or illness leaves you incapable of running your business.
Here are some things to consider as you embark on your succession planning, regardless whether your eventual need for it arises from foreseen or unforeseen circumstances.
Who will take over and when?
You might have one successor in mind, or perhaps you plan to have multiple people run the company. If it’s the latter, think carefully about how to set up the hierarchy, because sharing power doesn’t always go smoothly, and stalemates can prevent the business from flourishing.
You’ll also need to think about a timeframe. Maybe you believe your 16-year-old daughter is the person to take over, but she’s unlikely to want to do that anytime soon. If you passed away tomorrow, or next year, who would run things until she wanted to step up and take over?
What resistance might the new leadership face?
Imagine your daughter takes over at age 26. Would your whole team accept her leadership – or can you foresee someone making her life difficult? Not everyone likes change, and even though this is the 21st century, some people still question a woman – particularly a young woman – in a position of authority. What can you do now to acclimate your team to her eventual role?
How do you keep things equitable?
It’s also important to think about things in light of your broader estate plan. If you choose to pass on your business to your daughter, how would you compensate your other children to keep the division of your estate equitable (if that is your goal)? Would they still be able to profit from the business, or would you give them some other assets instead? And what if they were unhappy with how your daughter was managing things? Would they have some right to intervene? Might they litigate against your daughter if you don’t give them some say in things?
Would it be better to just sell the business?
Maybe none of your children will want the business, or you don’t believe the business will remain relevant in the future. Many business owners put plans in place to sell the business when they leave, rather than trying to keep it within the family. You could establish the process of a future sale/liquidation now and express your preferences about who can and cannot buy it. For example, let’s say you manufacture outdoor clothing, and protecting the environment is a key part of your mission. You could stipulate conditions so that the business can only be sold to someone with similar aims, not a corporation that will cast your ethos aside in the name of profit.
What legal consequences will the change have?
Whether you decide your business will go up for sale or continue to be run by someone of your choosing, it’s important to realize that there will be paperwork involved. Licenses, ownership documents and insurance will likely all need updating. There will also be tax consequences to consider.
In short, the best time to start succession planning is now. Seeking legal guidance can help make the process easier for you.