Most business owners want to see their business continue to prosper, even after they have passed the mantle of leadership on to their successors. Unfortunately, many owners do not realize – or underestimate – the depth of planning that must take place to guarantee that a leadership transition does not cripple their business. Developing a strong and complete succession plan is extremely difficult to accomplish and requires great foresight and expertise. Moreover, implementing a plan may take years to maximize the successors’ comfort and knowledge with the facets of the business of which only the owner has been aware.
As a business owner, it is important to remember that when thinking about the eventual transition of your ownership and operations, it takes a great deal of time – typically between three and five years – for a business owner or executive to transition his or her knowledge and expertise to a successor. If a proper plan is not in place, the business owner’s exit may be delayed, or the business’ survival may be put at risk.
When developing a succession plan, the assistance, expertise and advice of your financial advisor is an absolute and invaluable necessity. A qualified financial advisor will be able to foresee the pitfalls of transition and help you avoid them, all while giving you a succession plan that will help your company survive the actual transition period. Your financial advisor will also be able to coordinate the efforts of your other advisors, such as your attorney, insurance agent and banker.
Aside from enlisting the assistance of your financial advisor, it is vitally important to communicate your intentions to your employees, as this will help maintain the employment relationship you enjoy with your key employees, as well as provide a forum for input from them, oftentimes invaluable during this process. Avoiding fallout from a poorly communicated transition could be the difference between a business surviving or not surviving the transition period.
Due to the strong personalities of many firm owners, employees may be reluctant to step up and take on additional responsibilities, making it difficult to identify a qualified successor. To counteract this, the business owner must be ready to identify and then expose current employees to the behind-the-scenes aspects of the business, as well as introduce them to the community. Giving them the big picture of how to run the business requires that the owner change his or her role from leader to mentor, which can be a difficult task for some. It also will require the potential successor to develop his or her understanding of the business and the various talents and abilities that are required to run the business.
Choosing the correct method of transferring ownership is also vital. There are various tools at your disposal by which you can transfer ownership; ranging from selling the company directly to the new owner or reforming the company under a new name with new leadership. This process is difficult to navigate and is wrought with complications. Consulting with your financial advisor is recommended to ensure that the best option is chosen and implemented correctly.
Of course, the most important aspect of a succession plan is to implement it. It will be time-consuming and difficult to ensure that all of the goals of the succession plan are met and that all of the potholes are avoided. Staying the course will help you minimize the risk to the business and greatly improve the chances that your business will survive.
For more information about developing a strong business succession plan, contact me at firstname.lastname@example.org or 609-689-9700.