Don’t Fall Behind in Planning Ahead: Successful Succession Tips
You’ve worked for years to build your business. As you look to the future, whether you plan to stay on as long as you can, slowly hand off responsibility, or make a clean break, you need to have a vision for what will happen next. And the sooner, the better.
Succession can be complicated, but with advance notice, input, and clear communication, you can position your business for its future. Just remember that managing people and expectations is as important as managing money and titles.
Creating a clear path for internal succession
Your successor may already work for you. Don’t keep it a secret. If you have one or more key employees with the talent and desire to take over after you, sit down with them. Be clear about any expectations you have – financial and otherwise. Talking early offers the best chance of success.
Recruiting the right owner from the outside
An outside buyer needs more than money; they need a vision. Have potential buyers meet with employees. Ask them what their plan is for the business. If you aren’t comfortable your legacy is in good hands, look for a buyer you trust.
Keeping it in the family
Generational succession is as complicated as families themselves. First, you need to know if family members WANT to take over, and ensure they have the necessary skills. Balancing the desires of other family members in terms of business and inheritance is best addressed early, not in the heat of a stressful event like an illness or sudden retirement.
Making employees into owners
Consider passing your business to the most invested stakeholders. Setting up an Employee Stock Ownership Plan allows you to transfer the business to employees while establishing a clear plan for leadership and decision-making.
Planning for the unexpected
Not every transition is planned, but the unexpected can be planned for. If an owner becomes disabled or passes away suddenly, it can throw ownership into turmoil or even force a business to close. Tools like buy-sell agreements between partners backed by disability or life insurance, or Key Person Insurance can ensure stability. And don’t forget to keep your will up-to-date.
Whatever your approach, succession involves complicated legal and financial matters. Buyers might need a loan from the SBA or a bank, or assets and rights may transfer between family members and employees. All of that takes time and due diligence. Talk to your financial partners early and often about long-term strategic plans and keep them updated.
See how JTH Lighting managed its ownership change at alerus.com/JTH