Business owners are often so focused on the everyday needs and the operation of their businesses that they may not take the time to plan for how it might continue after they retire or can no longer run it. Succession planning is and should be an integral part of any successful business strategy. Planning for both current and long-term needs could help reduce tax liability and provide liquidity, depending on the needs of your business.
Succession planning could also help ease potential conflicts among family members (if your business is a family enterprise) or among employees who might wish to take on leadership roles. Also, when a business relies too much on one charismatic personality or leader, while that may currently benefit the business, it doesn’t bode well for the future when there is no one to strongly and authoritatively take the helm.
Here are a few crucial steps business owners would be well advised to take when it comes to succession planning:
Any business owner should have a solid estate plan. That’s because if you don’t have an estate plan in place, the business owner’s estate, which includes his or her company, must go through what is known as “probate.” This means the company will be appraised and its value will be listed as part of the estate’s assets. A majority of probate courts are online. Thanks to the Internet and the omnipresence of technology, probate court information and details about the values of estates and businesses are just a few clicks away.
A buy-sell agreement essentially states who can buy into the business and how this process will work. It allows for opportunities to explore possible options rather than coercing owners into costly litigation when the time comes to make these important decisions. One of the biggest mistakes business owners make is not have this type of an agreement in place.
In fact, Forbes.com states that nearly three out of four businesses do not have documented succession plans (which include buy-sell agreements) for senior management roles. Government estimates show that 52 percent of business owners in the United States have crossed the age of 50. That means there are a number of businesses out there, which could potentially be thrown into chaos and face the danger of losing value when a business owner passes away.
Once you know what lies ahead for the future of your business, it is important that you identify your successor and start to groom him or her for the job. It is important that you carefully consider potential candidates who have the qualities you are looking for to lead your business. When you identify the individual, you can institute a training program to prepare him or her for the future.
A solid business succession plan will also have a key team of advisors who can help you through the process. You will likely need the services, counsel and guidance of an accountant, succession planner and an experienced Baltimore estate planning attorney who can help guide you through the complex process of business succession planning.