Creating a Business Succession Plan
Running a business isn't just about immediate success. It's also about ensuring its long-term sustainability and growth. Unfortunately, business owners can get so caught up in the day-to-day running of their company that they may not have enough time to consider the future of their business.
Even if you don’t see your retirement anywhere on the horizon and don’t have plans to sell your business any time soon, life can take unexpected turns. By having a business succession plan in place, you can have peace of mind knowing that your legacy will continue uninterrupted even if something bad happens to you when you least expect it.
As a Lake County business succession attorney, Steven H. Peck helps business owners take a proactive, thoughtful approach when it comes to planning for the future.
What Is a Succession Plan?
At its core, a business succession plan is a strategic roadmap designed to ensure the seamless transition of business ownership and leadership roles. This framework typically encompasses identifying and developing potential successors, deciding on a timeline for transition, and outlining a process that supports continuity in leadership and operations.
If you are a business owner and have an estate plan, you might be thinking, “I already have an estate plan so I’m all set.” However, succession plans serve a completely different purpose, which is why business owners need both an estate plan and a succession plan.
Benefits of Having a Business Succession Plan
Creating a business succession plan is critical, yet often neglected. Many business owners simply don’t realize what they are missing by not having a succession plan in place. Here’s a short overview of the benefits:
Risk management. A lack of succession planning can leave your business vulnerable to many risks – from a sudden decline in performance due to leadership voids to potential disputes among stakeholders over the company's direction. If you truly value how far you’ve come with your business, you wouldn’t want any of those risks.
Preserving legacy and value. The lifetime work of a business owner can be preserved through thoughtful succession, reflecting their vision and maintaining the company's value. It ensures the continuation of service to customers and preserves jobs for employees.
Facilitating growth. A clear succession plan can make the company more attractive to investors and partners looking for an assurance of stability. It also often leads to sharper strategic focus and can identify areas for growth and improvement.
Ensuring a financially sound exit. By establishing the framework early, you can ensure a financially beneficial exit. Planning helps maximize the financial returns you receive, taking into account various factors such as market conditions and tax implications.
In today's volatile business world, succession planning is more than a luxury – it's a necessity. While the process can seem complex without legal guidance, it's integral to ensuring the continued success and legacy of your business.
Creating a Business Succession Plan in 7 Steps
While the exact steps to setting up a business succession plan may vary from one company to another, there are seven key steps that serve as the foundation for almost all succession plans.
Identify objectives of your succession plan. Before you can start crafting your succession plan, you need to clearly define what you aim to achieve. Are you looking to retire and pass on the business to a trusted family member or employee? Do you intend to sell the business? Or are you preparing for unforeseen events such as illness or death? Your objectives will steer the entire planning process, so take the time to get clear on your goals.
Assess your current leadership situation. Take stock of the current leadership team in place. Who are the decision-makers, and what roles do they play? Understanding the existing hierarchy and each member's contribution will help you pinpoint potential gaps or areas that may need support during the transition.
Identify the potential successors. Identifying potential successors is perhaps the most critical – and most difficult – step in a succession plan. Successors can come from within the business or be external candidates. Analyze each candidate's skills, experience, and leadership potential. It's vital to be unbiased and consider only what is best for the business's continuity.
Create a development plan for your successors. Once you have identified potential successors, create development plans to prepare them for leadership roles. This might include mentoring, additional training, or gradually increasing their responsibilities within the company to build their experience and skills.
Let stakeholders know about the succession plan. It's crucial that all stakeholders, including owners, board members, investors, and key employees, are aware of and support the succession plan.
Regularly review and update your succession plan. A succession plan is not a "set it and forget it" document – circumstances change, and so may the vision of your business and its leadership needs. Periodic reviews of the plan are necessary to ensure its relevance and applicability to the current business landscape and organizational changes.
Execute your succession plan. Execution is the final and most critical phase. When the time comes, activate your succession plan and make sure it is followed through with the least amount of disruption to the business.
As with estate planning for family business owners, you may need the guidance of an attorney when working on your business succession plan. Having an attorney on your side can ease the process and ensure that you formulate a succession plan tailored to your specific goals and circumstances.
Start Working on Your Business Succession Plan Today
Remember that succession planning is not a one-off task. Rather, it’s a dynamic process that evolves with your business. Working with an experienced business succession attorney to craft a plan that offers flexibility and serves the best interests of all parties involved.
The attorney at The Law Offices of Steven H. Peck, Ltd. can assist you in honoring your legacy and securing your long-term success. With a well-thought-out plan in place, your business can thrive for generations to come, serving as a testament to your vision, hard work, and leadership long after you've passed the torch.
Steven H. Peck serves business owners and their families throughout Lake County, Cook County, DuPage County, and McHenry County in Illinois. Book a free consultation today to get started on your business succession plan.