While there’s a fair bit of order in the business world, much of it is characterized by unpredictability.
Planning for both expected and unexpected eventualities is the best way to weather seismic shifts in your company’s operations, including changes in ownership caused by death, disability, or retirement.
Changes in ownership are both exciting and frightening. Even when you know a change is imminent, you might not know exactly how your business will look and run afterward, and neither will your employees. However, with a business succession plan in place, you can safeguard against the unknown and provide stability in an uncertain time.
Basics of a Business Succession Plan
A business succession plan is exactly what it sounds like — a plan detailing how a business will pass to the hands of another owner, usually following the death, retirement, or disability of the previous owner.
Business succession plans can also be used to help the company make it through a major upheaval in leadership despite ownership remaining the same. It’s a way for owners and other higher-ups to retain some level of control during a sale or leadership shakeup and thus protect their businesses' interests.
Small Business Succession Planning
Small businesses are vulnerable to many kinds of changes, but a well-thought-out business succession plan can provide much-needed protection from circumstance.
When creating yours, there are at least five major points you should consider for your plan to be effective. For best results, consider retaining the services of a skilled business attorney to help you create a business succession plan that meets your company’s particular needs.
Timeline
The timeline of your plan provides details regarding events that might trigger a succession. It also lays out an order of operations for you to follow when a certain trigger occurs, including important dates.
List of Potential Successors
This list presents all potential successors to your business and profiles their strengths and weaknesses, along with other information concerning their viability as a candidate.
Standard Operating Procedures
Your business succession plan should contain information detailing how every aspect of your business is to be carried out. Employee handbooks, manager training guides, and similar documents explaining vital operating procedures will help ensure a smooth transition.
Valuation of Your Business
Not only should you know how much your company is worth, but the valuation should be recent enough to give an accurate picture of its current value. Make it a point to update this figure regularly.
Funding for the Succession
Detail the method by which the succession will ultimately be paid for. Common funding options include life insurance and seller’s notes.
Once you’ve made these five elements part of your succession plan, you’ll be better prepared to deal with ownership and leadership changes in the future, no matter what type of business you’re running.
How a Succession Plan Can Help Your Small Business
Succession planning protects your business and its most important assets: its employees. With a properly formed business succession plan, your company will likely experience the following benefits:
- Reduced transition costs
- Future leader identification
- Avoidance of crises
- Peace of mind
- Seamless transition from one owner or leader to another
The aforementioned benefits are just a few of the positive outcomes you can expect when you have a solid succession plan in place. An experienced business attorney can help you understand more about the advantages of a business succession plan and help you create one specifically for your company.
To speak with a seasoned business lawyer, contact Heritage Legal in Palm Springs, CA, today and schedule a consultation with an experienced and caring legal professional.