How to make sure your business lives long after you

This is often the single most neglected element of business ownership. No one wants to think about it. But failing to choose a successor to lead your company can have devastating consequences for your family and employees.

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With succession planning, your business can survive when you’re gone

Yet many small and family business owners ignore this step. A small business survey conducted in 2017 by Nationwide showed that fully 60 percent of all small businesses lacked any type of succession plan.

Failure to plan can literally be a plan to fail in this case. A strategic succession plan helps you prepare your company’s future leaders so that the business can reach its goals. It helps you retain loyal employees and become a more stable, resilient organization ready to face tomorrow’s challenges.

To help your company survive and thrive after your departure, start creating your own succession plan today. Here’s how.

Start succession planning early

It pays to plan early—literally. For example, you may want to adjust your tax strategy specifically if you want to sell the company to an outsider. You want to maximize profits to make the company more valuable and attractive to qualified potential buyers. The sooner you start planning, the sooner you can implement an adjusted tax strategy to maximize your sale price.

Essential Components of Succession Planning

  1. A Time line Specific dates, if possible, and details of what events may trigger the transition.
  2. yours He chose a successor And any alternative, like your top choice, may not be able to move as planned for one of a number of reasons.
  3. A A formal document Outline all of your company’s operational and administrative policies, procedures, documents, employee manuals or handbooks, and all training documents
  4. A formal Evaluation report From a professional appraiser, preferably familiar with your niche or industry, with a plan to update the appraisal report regularly.
  5. Details of what your inheritance will be Funded-ie, life insurance proceeds, a note, other funds, seller financing, etc.

Choose your inheritance method

Decide how you will proceed. Whether you sell or otherwise transfer control of your company to your heirs, and the change is triggered by retirement or unexpected events, there are five main methods of assigning and transferring your ownership.

Sell ​​to a co-owner or partner

If you have partners or co-owners, consult your partnership or operating agreement to understand your mutual rights and obligations when you leave the company. Requirements may dictate that you first offer your interest to the remaining partners for their purchase. This arrangement can often make things much simpler and easier for your heirs and surviving spouse, if any.

This helps your spouse and heirs realize the fair market value of the interest without the burden of running the company themselves.

In theory, the partner should keep enough funds on hand to buy your shares at any time, as an unplanned departure can happen at any time. Alternatively, life insurance or key person insurance can be used to fund this transition.

Sell ​​to a key employee

Selling your interest and control to a key employee ensures that you get a willing, experienced party prepared for you, avoiding the complex challenges of choosing a family heir from among many heirs.

This plan gives you plenty of time to train and coach your intended successor in all aspects of leading your company.

Most of your employees will not have enough access to cash or liquid assets to cover the costs involved.

To alleviate that problem, you can offer seller financing, where the employee will pay you or your heirs a certain amount as a down payment and then periodic payments over time. You will need to work out these details with your chosen successor in negotiations before your departure.

Sell ​​to an outside party

If you don’t have a suitable successor or key employee who is willing and able to take over, selling to an outside party is a viable option to consider. Look at other entrepreneurs or competitors in your area and field for potential buyers.

The main challenge here is to ensure that you have a proper and accurate business valuation in hand and that it is updated regularly.

Some Challenges in Outdoor Party Sales

Disadvantages include the difficulty involved in selling certain types of businesses to others. If your company is service-based and built around your name or personal brand, it can be challenging to demonstrate the true value of the company.

This is a complex undertaking for you or your heirs to manage. However, that challenge can be alleviated by outsourcing the sale to a professional broker or other professional who can handle the complexities of an outside party sale.

transfer to heirs or otherwise successors

It’s one of the most popular choices (and the basis for a successful HBO TV show to boot). If you have a child or children, or other heirs, who have the interest, aptitude and inclination to run the company themselves – this may be the simplest and easiest way to transfer control of your business to the next generation.

Emotions often run hot in family transitions, especially when succession is due to death. If you have a successor who presents the necessary skills, experience, ability, and innate interest to run the company, it may be worth the risk.

Be very careful with the documents you leave and the way you communicate your choices to all your heirs.

Establish your company’s core values

Define your company’s core values ​​and make sure all your employees understand them. This is important because it directly affects the success or failure of your ultimate succession plan and the transition to new leadership. If your successor doesn’t align well with your company’s values, a breakup can negatively impact your company’s operations, employee engagement, and ongoing viability.

Define your goals in writing

It is also important to identify your goals. What do you want for your company, both short and long term? What are your personal goals, practically and financially? Define those personal goals and make sure they align with your business values ​​and objectives.

A senior team member or manager to give you input

Consider getting input from senior team members and managers at this stage to ensure you are considering a broader perspective during the process. With their input, project your company’s future needs. Work on a five-year basis and think about what meeting the company’s objectives will mean for its changing structure.

Finally, create updated job descriptions that align with the data you’ve identified and analyzed so far. Clarify and manage your own expectations so that your next decision will be based on reason, logic, and anticipated current and future conditions.

Identify and train your successors

To identify potential successor candidates for the position, evaluate each candidate against the list of skills and experience metrics you created for the role in the previous step.

For top positions, you want to make sure you’re choosing candidates with significant problem-solving skills and adaptability. If the pandemic proved anything, it’s that small businesses must be able to pivot quickly when the unexpected happens.

Remember that you are looking for potential. People can develop core skills with experience and time. Look deeper than the resume and keep personal biases and preferences out of the equation as much as possible.

If you can prove an interest in the inheritance, it will help you

After you’ve identified your successor and verified their interest in transitioning to lead your company, plan and execute to give them the tools they need to succeed.

Your goal is to empower your successor with appropriate training opportunities so they can gain the necessary experience and expand the skills they need to perform to their potential in a new position when the time comes.

Explore formal training courses and offer a mentoring or coaching program for ongoing support. Establish a policy of open communication and continuous feedback so you can continue to refine the training and development program.

Give them the opportunity to learn about every aspect of the business and ask questions of you and your leadership team/team members.

Document everything

It is important to create a formal plan and write it down in as much detail as possible, and to do it well; You need feedback from all stakeholders throughout your planning process.

Your planning documents should include employee handbooks, training plans, operational and administrative procedures, contact information (both internal and key external vendors), decision trees, and emergency operations plans.

What happens when a hurricane or other epidemic strikes? How can you keep things going? How have you pivoted in the past, or how might you do it in the future?

Periodically review and update your planning document. After all, things change all the time. Key workers may retire or take on different jobs.

Your family members involved in the succession plan may lose interest or take other jobs. Industry realities may evolve and change. Every year, take some time with a core group of advisors and professionals to review the plan and see if there are areas that need adjustment.

Let it go

Once you’ve chosen your successor and implemented a training plan for that person, you can choose to start the transition while you’re around to help. If you’re intentionally transitioning out of your leadership position, this is the perfect time to ease off the gas and slowly take control.

Start allowing your successor to make their own executive decisions.

Graciously let go of the reins. Proving to the company and your successor that you now have complete faith in them by letting them take the lead will help provide legitimacy and loyalty to your successor. In the long run, this will help your company stay strong and profitable in the future.

Stay in touch

Maintain communication with your successors after you step down, to provide guidance when needed. Keep those lines of communication open but don’t abuse it or set any expectations. Let them come to you.

You can also ask if they would like to schedule a regular, recurring lunch date to discuss their concerns and get your input. However, it is important to ensure that it is their choice. They know what they need and how they work best.

Don’t take it personally if they don’t come to you often or at all. Recognize that they need to chart their own path to reassure others that they are in control. You wouldn’t put this person in place if you didn’t think they could do the job. But they won’t do it your way – allow that freedom.

Celebrate your success

Now that you’re transitioning to actively running your company, it’s the ideal time to take a moment to appreciate your accomplishments. Take time to look back on your journey and be proud of what you’ve built. It’s also a good time to recognize that you didn’t build it alone. Being humble means appreciating that a team effort has led to the longevity of your business.

Part of your success is choosing the right successor. It’s like being a parent. If they’re flying high on themselves, you’ve done your job well. Be proud of their success, as well.

Featured image credit: Provided by author; Thank you!

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