What Is Business Succession Planning?
For many business owners, retirement planning feels so far away that they don’t think about business succession planning until late. It’s true, so much of your time is spent trying to keep your business afloat day-to-day.
However, creating an exit strategy is crucial for business success. This article will cover the types of succession plans and the benefits of succession planning. We’ll also share training programs to help create your business plan.
What is business succession planning?
To ensure its success after your retirement, you need to determine who will run the business next. No matter the size or nature of your business, business exit planning is crucial.
You might choose to leave your business to a single person or group of owners. They might be employees, family members, or a third party. When exiting your business, you want to ensure that the next person making the business decisions is well-trained and trustworthy.
For all business types, to keep your business operating smoothly in the future, follow our key steps.
How to create a business succession plan?
Succession planning requires picking a successor and training them. Whoever you choose as your successor might depend on the type of business.
For example, succession might be handed down from father to son in a family business. Or, in privately-held businesses, you might choose a key employee.
You will also need to establish a process of how to maintain daily operations, the key roles, and a review of facilities. In larger businesses, typically, a board of directors will oversee the process of transferring business ownership.
You might even need to engage a business attorney to organize more complicated details. We’ll get into more detail in choosing your successors and buy-sell agreements below.
Pick a successor
Picking a successor isn’t an easy part of the continuity plan. You might have an idea of potential successors in your mind.
However, it takes careful consideration to ensure that they can take over the business. Not only can you trust your successors, but are they qualified?
If your successor candidate is evident to you, then pay attention to their professional development. Encourage them to shadow you and take on higher responsibilities so that you can trust they will be competent.
However, remember that picking a successor isn’t your only option. You might choose to sell the business instead. Plus not to mention, picking a successor is also crucial for:
Protecting the ownership of your business.
Ensures that your business is running smoothly if there is changing ownership.
How much is the business worth?
For some people, selling the business is the most desirable option. If you choose to cash out, make sure you know what it’s worth. It’s sensible to get a business valuation by a financial professional to establish the value of the business.
Make sure you consider tax law and any tax liabilities your business has should you cash out. Remember that if a business owner doesn’t make continuation estate plans, then should tragedy strike, the business is automatically sold. It’s essential to consider the potentially disastrous impact on employees.
If you are part of a partnership agreement, you might each take out life insurance. Therefore, should one partner die, the insurance company pays for the remaining partner to buy out the rest of the business.
These are called cross-purchase agreements in business partnerships. It’s structured to own a life insurance policy on another partner within the business.
They pose as both owners and beneficiaries of the policy. If partner A dies, partner B receives the funds to buy A’s share of the business. Should B have personal finance?
In situations like this, it is best to seek legal and financial advice to set up cross-purchase agreements and buy and sell business ownership.
Why is a business succession plan important?
A business succession plan is often ignored in business law. We all think we have plenty more time to think about how we’ll transfer the business in the future. However, a robust succession plan provides many benefits.
Employee benefits — employees know that there is a potential for advancement and ownership, improving satisfaction.
Continuation enables growing your business even after you have retired. Plus, it ensures the smooth running of operating procedures.
A succession plan improves commitment. Training and supervising will go up if the employers know that the top talent might lead one day.
A plan reduces the risk of an outside party taking over due to cash flow problems. It will also minimize disputes.
Plan for your family if it’s a family-owned business.
Examples of business succession planning
Let’s look at an example of exit planning. Warren Buffet is the current CEO of Berkshire Hathaway. Earlier this year, Buffet announced that his successor was Greg Abel, the vice-chair. In this instance, the CEO has opted to transfer ownership to one of his own. As vice-chair, Abel has the expertise and qualifications to take over when Abel leaves the role.
On the other hand, Elon Musk at Tesla is an example of an organization with no succession plan. While Musk is only in his 40s, if something should happen to him, Tesla would be without a guide to succession planning.
These real-world examples might stress the importance of succession planning. To learn more about planning for your succession, take an online course. At Courses for Success, we offer a Business Succession Planning Online Certificate Course. The course teaches you how to follow the key steps to plan.
Whether you want to sell your business or keep it within the family, a succession strategy is crucial.
Why Courses for Success?
Courses for Success offers over 10,000 online courses, all of which aim to help you in your personal development and career progression. Not only that, but you can also study them anywhere and at any time, and take them at your own pace, too.
You don’t need career diplomas or specific experience to get started. From our coding courses and trading courses to design courses and developer courses, every course we offer will help boost your prospects, no matter who you are.
Beyond just the education itself, students will be issued a certificate online after completing each of the learning courses they do. Our business succession planning courses are no exception and are recognized by industry leaders. You could make a name for yourself by signing up for a Courses for Success short course today.