Whether your business has been in the family for generations, or you founded and built it from the ground up yourself, you likely want to keep it going after you retire or pass away. Of course, you want to ensure a smooth transition to the new leadership that you have chosen. That’s where succession planning comes in.
Business succession planning can be a complicated process, but if you take it step by step, and contact an experienced business attorney like ours at The Frazer Firm, you can protect the company you have worked so hard to build.
What Does Succession Planning Entail?
Succession planning involves the process of identifying and developing future leaders that can take over a company or organization when the current leader leaves or retires. This plan helps ensure that an existing business continues to operate smoothly, even when a leader steps down.
When creating a succession plan, businesses need to consider their specific needs for the future.
- Companies should identify potential candidates who can fill in any gaps and meet any challenges that may arise after their current leader departs.
- A succession plan should also include ways to maintain continuity in operations, such as training programs and mentorship opportunities for future leaders.
- Individuals identified as potential successors should be evaluated on how well they understand the organization’s mission, values, and goals. This will help ensure that any changes made during the transition are done by following these objectives.
These measures protect both the owner’s assets as well as guide those who will take on new roles or responsibilities within the organization.
The business succession lawyers at The Frazer Firm can help you prepare a succession plan for your business that will account for your individual needs and goals while protecting the future of your business.
Two Common Types of Succession Planning
In general, there are two basic types of succession planning for business owners:
- Exit Succession Planning
- Death or Accident Succession Planning
Let’s take a closer look at each.
Exit Succession Planning
An exit succession plan prepares the business and the business owner for a transfer of ownership and puts in place tools that are needed to effectively make this transfer with as little disruption to the business as possible.
Death or Accident Succession Planning
A death-or-accident succession plan protects a business and the business owner’s family in the event of the owner’s unexpected death or disability. It can be challenging to deal with business succession issues when tragedy strikes, and failure to plan for an unexpected situation could jeopardize the company’s long-term growth.
In this case, a business succession plan ensures that the business will continue to operate and establishes a monetary value for the company. This plan typically includes a buy-sell agreement, which is often funded by a life insurance policy.
The Steps Involved in Succession Planning
Business succession planning can seem daunting, but our lawyers are here to guide you through the process.
There are five common steps involved in succession planning including:
#1. Timeline of Succession
While it can be difficult to predict when the transition of ownership should occur, it is best to begin the process early enough to create a thorough plan with key benchmarks to ensure a seamless transition.
Despite the best-laid plans, unforeseen events can occur such as health concerns or issues within the company. A comprehensive succession plan will account for any unexpected events and include them in the overall strategy.
#2. Determine a Successor
In some cases, the successor of your business is clear; perhaps you have a child or business partner who has been working in the business for years. Other times, you might need to evaluate the strengths and weaknesses of various candidates to choose the right business successor.
#3. Formalizing Standard Operating Procedures (SOPs)
Business succession will require processes being transferred from one person to another. To ensure that this process happens smoothly, we recommend formalizing these processes by documenting Standard Operating Procedures, or SOPs.
You should include a detailed written plan for the succession of the business and ensure that the company’s records and documents are well-organized and easily accessible to key business leaders.
#4. Establish a Value for the Business
Establishing the value of your business often requires a comprehensive evaluation by an account or business appraiser. Alternatively, the business owners can agree on the value of the business and how the purchase of an ownership interest should be handled.
#5. Fund the Succession Plan
Company succession plans are often implemented through a buy-sell agreement that is funded by a life insurance policy. This buy-sell agreement can specify:
- Who is allowed to stake an ownership interest in the business.
- What will happen if the business owner leaves or decides to retire.
- How ownership interests will be handled in the event of a divorce.
- What will happen if someone inherits an ownership interest due to the death of an owner.
Read More > Rights of Partners in a Business Divorce
Preserve Your Business with The Frazer Firm
The Frazer Firm can be a great asset in helping business owners preserve their businesses through succession planning. Our experienced attorneys can help you identify the best strategies to ensure that all stakeholders are taken care of, no matter what the future holds.
Whether you are looking for advice on how to pass your business down to younger generations or need help navigating legal and tax requirements, The Frazer Firm is here to help. Contact us for a consultation today!
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