Business succession planning, or business continuation planning, is a proactive process that ensures the business’s survival in the event that an owner or partner dies or is disabled in some capacity. It’s often seen as a secondary priority—in fact, only 26 percent of small business owners have some kind of succession plan in place. And on some level, it makes sense; after all, nobody plans on being incapacitated. But it’s a crucial step to take if you want to ensure the longevity of your company.
Why You Need a Business Succession Plan
First, let’s explore why you’d want to create a business succession plan in the first place:
No matter how healthy you feel, or how invested you are in growing this company indefinitely, there’s no guarantee that something won’t change in the future. Business succession planning helps you guard yourself against those unexpected events.
Business protection. Turning the business over to someone you trust, or providing it with an injection of capital, can help ensure the business stays running in your absence. Otherwise, your business may be especially vulnerable after you’re gone.
Speed and efficiency. Formalizing a business succession plan also makes the recovery process faster and more efficient. People won’t have to guess about your intentions or desires, and facts like your company’s valuation will be set in stone.
How to Create One
There’s no single “right” way to create a business succession plan, and you can use an online template to guide you through the process. However, no matter what your intentions are, you’ll want to follow these important steps:
Define your goals. Consider what your goals are. Are you interested in keeping the company poised for growth for as long as possible? Are you trying to keep the business in the family? Or are you interested in selling the company eventually? There’s no right answer here, but before you proceed with the rest of the plan, you should have these answers in mind.
Get an accurate appraisal. Get your business appraised. You might be able to make a fair estimation on your own, but for a legal document like this, it’s better to get the opinion of an outside expert. Take note of the valuation and use that for determining things like potential buyouts or handling an ownership transition.
Establish a buy-sell agreement. Buy-sell agreements are legally binding documents meant to redistribute ownership shares of a company if one of the owners dies or steps down from the business. This will help you ensure the company is transitioned smoothly to the person or people of your choice, and will set the terms for that transition.
Get insurance. If you’re concerned about what will happen to the business if you or one of your partners is gone, consider getting key person insurance or a similar insurance policy. These policies are designed to pay out in the event of your death or incapacitation, giving the company enough cash flow to keep moving forward.
Identify executors and decision-makers. Who’s going to be responsible for overseeing the execution of this plan? You can name someone in your company to take over these responsibilities, or name a lawyer you want to handle the process—or both. In any case, make sure the party is informed of their responsibilities and up-to-date with the latest plan.
Create a timeline. How fast should the company transition? What needs to happen first? How should the first week and the first month of the transition look? At some point in your succession plan, you should create a timeline for these events. It doesn’t need to be strictly adhered to, but it sets a general expectation for what should happen next.
Set rules for reviewing and updating the plan. Finally, set a schedule to regularly revisit and update your succession plan. You may find that some of your priorities change, or that the value of your company increases. No matter what, an annual check-in could help you keep your plan better-tuned to your goals.
With a business succession plan in place, your business will be much better protected in the event of you or your partner’s death or incapacitation. It’s an intensive step, and one not all business owners feel ready for, but it’s important to move forward no matter what your current plans for the business are.
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