Have A Succession Plan for Your Business
For many business owners, their business is more than just a source of income from them during their lives – it is also a valuable assent to pass along to children and/or to provide for their family. For those reasons and others, it is important for every business owner to have a succession plan.
What is a succession plan
A business succession plan covers what happens to the business in the event that the owner of the business dies. While this is not the most popular topic for business owners and their families to contemplate, death is an unavoidable fact of life and it is prudent to plan ahead.
Succession plans help your family
By taking care of succession planning in advance, business owners can spare their family the burden of having to handle such matters after their death. That way, instead of distraught relatives attempting to cope with the owner’s passing and also figure out what to do with the business, that planning can be done in advance by the owner (who certainly knows more about what should be done).
Since the livelihood of the family may be tied up in the business, it is also extremely beneficial for the family to have put a succession plan in place to ensure a smooth transition. Having to deal with a loss of a relative is bad enough without having that loss also cause unnecessary financial hardship.
In the case of a business that will be passed along to multiple children (or other relatives), having a succession plan that clearly spells out the roles and ownership interests of those new owners can go a long way to avoid rivalry between relatives or other interpersonal issues.
Succession plans help customers
Customers may have money, property, or other valuable interests that would be harmed by chaos at a business when the owner passes away. Having a succession plan can protect those customers, which in turn protects the future owners of the business from disgruntled customers and a loss in value of the business they would inherit.
Indeed, in some professions (such as attorneys who own law firms), there are often state ethics rules that require a succession plan be in place to ensure that clients are not harmed. Even in businesses that do not have such legal requirements, the advice to have a succession plan is well taken.
What a succession plan should cover
Succession plans should cover future ownership of the business (and should match the will or other estate planning documents that the owner has prepared). It is wise to consult with an attorney for this aspect of succession planning.
Details as to how to manage the day-to-day operation of a business are often kept in the owner’s head, which does future owners no good. Preparing a written document that provides necessary information – from bank account numbers, to advertising contacts, to payroll data – and saving that document in multiple safe places, can go a long way to helping an owners successors hit the ground running.
Taking some time to show a successor how the business is run can go a long way to ensuring a smooth transition. Hands-on experience is something that is hard to replace.