Succession Planning: Key Steps to Secure Your Business’ Future

by Michelle Bomberger | June 2, 2015

It may seem overly simplistic to say that a few succession planning steps can secure your business’ future, but really, they can — especially if you think about your business’ future as its success beyond your presence in the company. Needless to say, your departure from the company is inevitable – whether voluntary (as in a retirement) or involuntary (as in a death or permanent disability) and you may or may not yet have a plan for who will take over your business in either scenario. Either way, though, it’s important to recognize that much of your personal wealth is locked up in your business and you must have a plan in order for you or for your family to benefit from all you’ve invested.

There are many ways to approach succession planning and many steps that can be taken to accomplish the goal of extracting wealth from the business. However, from my experience, here are some key strategies that will make all the difference in your success.

– Document key dependencies and critical success factors. Your business is comprised of daily activities that result in the delivery of your products and services to customers and the collection of revenue to support the business. Many of these steps are ingrained in your habits and processes so that you don’t think twice about them. Yet, if you consider the impact of losing a person or key system in your organization (including yourself), you’ll begin to see where you have significant dependencies and what activities drive your business’ success. When beginning succession planning, you should consider what processes would break down if you lost one of your critical people and what contingencies could be put in place to minimize the impact. Document what you’ve learned about your organization, create a plan and communicate it to the key people in your organization so that they can quickly take action to mitigate the business impact of such a loss.

– Designate a successor. Your successor is one or more individuals who know how the company operates and can fill your shoes as the manager or business decision maker – your “second in command”. It’s essential that you discuss this successor role with the individual in the context of your plan and ensure he or she is willing and able to accept this responsibility. You should spend time with this person sharing the dependencies and plan described above and preparing the individual to perform in your temporary or permanent absence. With a retirement, you are able to formally make a transition; however, if you unexpectedly died or became permanently disabled, your business would suffer both an emotional and operational shock. It’s important that this person understands the business and can step in to execute your plans either in a temporary or permanent capacity.

– Set forth a list of wishes/desires for the business ownership in a Shareholders’ Agreement and Estate Plan. In addition to the operational issues discussed above, it’s also critical to address ownership issues in succession planning. Where there are multiple owners, a Shareholders’ Agreement or Operating Agreement is necessary to describe the transfer of ownership in the case of your death or permanent disability. Your estate plan or will is also critical to ensuring your ownership in the company is transferred in accordance with your wishes. It can be very difficult to determine how you want your ownership to transfer but it’s critical to have a plan that can be executed by your estate. Otherwise, the business may end up in an indefinite hold up situation where decisions cannot be made and the company’s activities and growth are thwarted. You should also discuss the plans with those named in your will and your family so there so there are no surprises to further disrupt your plans for the company.

This plan requires you to expose the dependencies of your business and address them as well as designate a key person to step into the business in your absence. Many plans solely address an involuntary departure such as a death or disability but, depending on your age and plans, may also set the stage for your planned departure as well. Of course there are many other steps to support and further define this plan; but with these three key steps, you have prepared the key information and notified the necessary players to begin a transition that brings to light key dependencies and risks and puts people in place to move the business forward.