You Need a Business Succession Plan. What Needs To Be In It?

If you want your company to survive you, i.e., not die when you do, you need to develop a plan for it to survive the passing of the torch. The statistics on family businesses, which make up the vast majority of privately owned U.S. businesses, suggest that far too many business owners do not prioritize succession planning. Roughly one in three family-owned businesses survive the transition to the second generation, and the numbers go south from there. While every company is unique, there are a few universal threads among most business succession plans. 

1. Identify how you want to pass on your business. There are several ways you can go about transferring your ownership interests. A common method for small business owners is to simply sell the company to a son or daughter (or another family member). Other entrepreneurs might groom an ambitious and hard-working employee to take the reins. In the absence of an obvious successor, business owners may either look to an outside buyer, sell their interests back to the company, or sell to one or more business partners. Knowing how you will transfer (or sell) your ownership will help provide the framework for the rest of the plan. 

2. Determine the characteristics your successor needs. To state the obvious, business ownership is not for everyone. Many small business owners need to have passion, confidence, drive, enthusiasm, and a willingness to take calculated risks. If you will need to look outside the organization to find your successor, nailing down the need-to-have traits will help you choose the right person. 

3. Sketch a rough timeline for the succession period. In a perfect world, you will create a thorough and effective succession plan and all parties involved will follow it to the letter. Of course, almost nothing goes exactly as planned. To be clear, your succession plan should follow as closely as possible to your ideal process, but it’s also prudent to plan for surprises. Planning a target exit date is a good starting point, but you should also consider naming other triggering events for passing on your business. This heavily intersects with estate planning. If you plan to sell your ownership interests to your business partner, have a written agreement that designates triggering events for the buy-sell agreement in addition to an expected exit date. 

4. Implement and document repeatable processes. The companies with the best chances of long-term survival are those with policies and procedures that can be repeated by multiple employees. The best way to make sure a process is implemented is to have it in writing. While you want your successor to have an appropriate amount of autonomy and ability to implement new ideas, it’s worth documenting the processes that already exist and are effective. 

We Can Help You Preserve Your Hard Work

While it is never too early to begin planning your exit from your business, a rule of thumb is to start 10–15 years before you want to leave. In addition to addressing legal considerations in your business plan, Hudson Legal can be your advisor as you seek to grow and sustain your company. We have experience counseling a wide variety of companies; call us at (678) 825-4525 to set up a consultation with our team today.

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Sage Business Counsel

The legal team at Sage Business Counsel, an innovative business law firm based in Atlanta, serves growing companies all across the US by providing strategic counsel at every stage of growth.

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