Succession Planning In 7 Steps

Every business owner should have a plan for what happens to their business when they can no longer run it. At Drucker & Mattia, PLLC, we are accustomed to assisting our clients with estate planning and business law matters, and succession planning happens at the crossroads of those two practice areas.

A sound and well-drafted succession plan is the equivalent of creating a roadmap for your business’s future without you and securing your legacy. With that in mind, we wanted to break down the essentials of succession planning for small business owners.

Your Roadmap

Succession planning is all about deciding who will take over your business when you can’t. Regardless of your age and health, there are several reasons why every business owner should think about this question. People develop succession plans because they may eventually retire, face a debilitating illness, or encounter many unexpected life events. Having a plan is crucial because it ensures your business will outlast you. Although leaving a legacy is important, it is also your opportunity to protect your employees. They may rely on your business for their livelihood and to support their families.

Start Early

One of an entrepreneur’s most significant mistakes is waiting to make a plan. Though the business may be in its infancy, that doesn’t eliminate the need for a succession plan. Anyone who begins a company is thinking about the future, and having a plan fits into this. Do you see a family member taking over? Or perhaps a dedicated employee or a business partner? Starting early gives you plenty of time to think, decide, and even change your mind.

Identify Potential Successors

Simply put, you’re looking for someone with the skills, experience, and, importantly, the interest to take over. More specifically, you’re looking for someone your employees will follow during a critical time in your business’s life cycle. This person needs to possess business acumen and industry knowledge and has demonstrated that they are committed to being a part of your business’s future. Never underestimate the importance of assessing someone’s ethics and integrity. Do their values mirror your own? Sometimes, the best person might not be the most obvious choice. Have honest conversations with potential successors to see if they can assume the role.

Create a Formal Plan

Your succession plan should be a formal document. It’s not just a casual promise or an understanding. This plan should clearly state who takes over, their roles and responsibilities, and the steps for the transition. Outline any training and development processes required for the successor. Include timelines for each stage of the transition, ensuring there’s a clear pathway for the changeover.

Documenting how business knowledge, relationships, and critical contacts will be transferred is vital. Consider including contingency plans for unexpected situations, e.g., health issues or changes in personal circumstances. This formal plan should be reviewed and updated regularly. Adapt your plan to reflect changes in the individual’s business or personal circumstances.

Ensure it’s accessible to key stakeholders, such as family members, business partners, and legal advisors, to ensure transparency and understanding across all levels of the business. A well-crafted, detailed formal plan is a blueprint for the company’s future and a tool to prevent misunderstandings and conflicts during transition.

Train Your Successor

Once you’ve picked someone, define their role and set expectations. This can be achieved by developing a training plan that involves operational knowledge, strategic planning, and financial management. Training includes a practical application. Allow them to receive first-hand experiences and learn how the business operates. When critical decisions are to be made, include them in the process. Let them contribute while also seeing how you work through problems. Throughout this process, provide feedback on their performance and also acknowledge the progress they have made.

Get Professional Help

Estate planning can be complex. It’s a good idea to get help from lawyers and financial advisors. They can guide you through the legal components you are not equipped to handle, such as wills, trusts, and tax implications. Professional advice is crucial.

Communicate Your Plan

Talk about your plan with those it affects. This includes family members, employees, and even key customers. Clear communication can prevent misunderstandings and ensure everyone is on the same page.

Review and Update Regularly

Your business changes, and so do your plans. Review your succession plan regularly. Are the people you selected still the right choice? Because we already mentioned feedback, the person you selected may perform differently than expected. Furthermore, there could be new laws that affect your plan. A regular check ensures your plan always fits your business.

Drucker & Mattia, PLLC

Estate and succession planning are essential for small business owners. It’s about securing the future of your business and ensuring your legacy continues. Remember, it’s never too early to start; getting it right takes time and effort. With a solid plan, you can enjoy peace of mind knowing that your business is in good hands, whatever may happen. Contact us today for a consultation.