A succession plan is a strategy that maps out the people who will step in and run a business when the owner retires or steps down for another reason. The document also gives step-by-step instructions for procedures to follow when other vital employees leave positions. A company with a poorly written business succession plan, or no plan at all, is much more likely to fail after the owner steps down from his or her position within the company. If you have questions about the process or need help creating a business succession plan, consider contacting a diligent estate attorney at the Law Office of Aubrey Carew Sizer PLLC at (571) 403-2619 to schedule a consultation.
Why Do Business Owners Delay Creating Business Succession Plans?
Reluctance to prepare a business succession plan is understandable. Company owners will have to make decisions that may be unpleasant to think about or are highly emotional. However, no matter what type of business it is or how long it has been in operation, most owners and CEOs have built their businesses from the ground up with the hope it will continue thriving even after they step down. The business is much more likely to thrive when the owner takes the time to create a business succession plan.
When To Begin Preparing the Company's Succession Plan
According to analysts, if they have not already started, business owners must begin creating a business succession plan at least ten to 15 years before they plan to step down from their roles. Even in cases where company owners do not believe they will ever fully retire, a succession plan is vital in the event that something happens to them.
As a busy small business owner, it is not uncommon to focus on the needs of today. However, failing to prepare for the future could cause the company's eventual demise. The lack of a succession plan can cause many hardships in the future. A worst-case scenario occurs when the CEO or small business owner suffers a medical emergency and cannot step back into his or her role with the company but has no written plan of action in place.
Reasons To Prepare a Business Succession Plan
While there is no way to have a clear picture of what the future holds, planning for various scenarios always helps. A succession plan, therefore, is beneficial for at least the following reasons:
- Helping the business survive an unforeseen disaster or event
- Saving the company CEO a lot of money if an unexpected event occurs
- Ensuring that the family of the business owner retains shares or other ownership interests
- Improving company morale and motivation
- Improving inter-company communication
- Requiring the business owner to consider and make serious decisions about the company's future
- Earmarking sufficient funds to pay future taxes
Potential Consequences of Not Having a Plan
The conversations that these plans require may not what most people want to think about or consider, but they are essential. The potential consequences of not having a plan in place include the following:
- Disputes between business owners, family members, and other shareholders
- Management roles left to individuals with inadequate experience who make poor business decisions
- Loss of customer trust that can cause long-term clients to take their business elsewhere
Identify Future Goals and What Is Most Important to the Business
Company owners must make crucial decisions about where they see the company in the future. Sometimes, business owners may know that the business will close when they leave, but they must plan for the time ahead. It is common for the owner to want the company to stay within his or her family. Sometimes, owners will choose to allow employees to purchase the company when they step down. Whatever the plan, they must lay out the strategy for the organization's time ahead under different scenarios.
Identify Potential Successors
The succession plan should name the future owners and those who will take over other leadership roles when the time comes. If there is more than one likely candidate, consider that there could be more than one person running the business. The new leaders may be the heirs of the current owner or individuals outside the family. After deciding potential scenarios for when employees leave, consider which team members could step into those roles.
Consider Developing a Mentor Program
One way to ensure that a company runs smoothly after the current owner leaves is to develop a mentor program. The program will allow those currently in leadership roles to train those who will step in when necessary. There will be no rush, and the program will ensure proper training.
CEOs nearing their retirement dates can integrate their successors into their daily work duties. The successor can also transition into a lead position that deals with outside parties. According to the Small Business Association, creating a training plan to ensure that the person stepping into the role has plenty of time to learn the necessary skills and practice for their new leadership position is crucial for success.
Designate a Power of Attorney
A power of attorney is a legal and binding document that allows others to make business decisions in the absence or on behalf of the named person when necessary. A power of attorney is vital for business owners to have in place in case of an accident, illness, or any other unexpected event.
According to the Code of Virginia § 64.2-1609, a business owner or agent may appoint one or more successors to step in as acting agents in case the owner dies or becomes incapacitated. Unless the legal document states otherwise, the successor will have the same legal authority and rights as the original agent who granted the power of attorney. An experienced estate planning attorney at the Law Office of Aubrey Carew Sizer PLLC can help draft this important document and make sure all necessary provisions are included.
Document the Succession Plan and Review It Regularly
Document and write a clear layout to map how the company should continue to operate after the CEO or business owner leaves his or her position. The plan should involve critical information, such as insurance, tax, and agreements. Once the document is complete and receives approval from all appropriate parties, copies should go to family members who have future leadership roles and anyone else the succession plan involves.
Finally, it is vital to do regular reviews to see if anything needs to be updated. If there have been recent developments or unexpected changes, the plan needs adjustments to ensure that all information is accurate. Operating a successful business is a significant task that can take up most of the owner's or CEO's time and resources. Because day-to-day operations are busy and so much energy is necessary for running the business, they commonly delay plans for the business's future.
Meet with an Experienced Estate Attorney Today
Planning for the unknown can be difficult, especially when you have a company to run. However, a hard-working and knowledgeable estate attorney could help you through the complex process. All businesses, large and small, whether they are a corporation, partnership, or other business entity, should have a comprehensive succession plan. A successful objective will list the organization's business owners and family wishes. An experienced lawyer can assist you in making sound decisions that will protect the future of the enterprise you have worked tirelessly to build. If you would like to begin creating a business succession plan, consider calling the Law Office of Aubrey Carew Sizer PLLC at (571) 403-2619 to schedule a consultation today.