Shareholders in a company must work together to determine the proper succession for their business. As business owners approach retirement age, it is important to create succession planning strategies to prevent changes in leadership from negatively affecting their company. A succession plan is a process used to identify and develop new leaders who can take the role of previous leaders after they leave, retire, or pass away. Business succession planning is an effective way for a company to ensure that employees with the right skills and industry experience are recruited and that there are sufficient workers to fill key roles within a company.
Strategies for Creating a Succession Plan
People become business owners for a wide range of reasons. Some inherit the business from a family member, such as a parent or grandparent. Others apply for the position and acquire the leadership role due to their strong skillset and vast experience in the industry. In some cases, a person starts from the ground up, building a business from scratch. No matter how you started or acquired your business, you want to begin planning your exit strategy early. Business succession planning strategies a way for you to determine what type of legacy you want to leave behind.
1. Establish Overall Business Goals
Not everyone involved in a business will have the same set of goals and objectives. If you want your business to continue growing in a certain way, it is important to discuss your wishes with your future successor. When determining key business goals, develop an outside-in perspective to determine where you may be making errors in judgment. Analyze the current state of your business, or look for areas that could be expanded or improved in some way. Use this information to plan for the future of your company and guide your successor.
2. Identify Succession Leaders
Good leadership transition is crucial for the health and development of your business. Start by looking at the exiting leader’s unique skills so that you can better identify potential replacements from within your company. Through business succession planning strategies, you can identify employees who may have superior abilities. As a potential successor advances through the organization, he or she may gain the necessary skills to be a successor. Choosing a replacement from within the company is often the best option as this person is already familiar with the business’ values and mission.
3. Develop Policies for Decision Making
Your ability to make wise decisions on behalf of your company plays a critical role in the growth of your business. As not everyone has excellent decision making skills, it is important to develop policies for decision making early on. Shareholders should come together to decide the best ways to address certain types of scenarios and disputes. Once implemented, these policies can help prevent delays in operation and can keep chaos to a minimum. Having set decision-making policies in place can also make the transition to successor smoother.
4. Choose Successors to Take on Responsibilities
Even your most talented employees may not have the skills or experience necessary to take on certain responsibilities. That is why many companies choose more than one successor. When multiple successors are chosen, these employees are able to fill roles that require a unique skillset that others may not possess. Once you have assessed your high-potential employees, you can better prioritize their development needs and get them the training they need to increase their potential. After defining the roles and expectations for each individual, be sure that they complement your set business goals.
5. Produce Estate Plan Documentation
As an owner, your business will play a direct role in your estate plan. Upon the sale or transfer of ownership, or if divorce or death occurs, you want to ensure that your shares of the company are transferred to the right people. Take the time to review any estate plan documentation which can help your successor avoid delays in transfer of ownership and can minimize taxes. Remember that a succession plan is never set in stone. In fact, it should be continually reviewed and updated whenever certain circumstances occur that may call for a change in succession.
Learn More About Succession Planning Strategies
Do you have a plan in place for after you are gone? Will you leave your business to a family member, or will ownership transition to an employee? Having an established succession plan can help keep your company moving in the desired direction after you retire, leave, or pass away. If done properly, your succession plan can even generate income for you or your family that can seed your retirement. For more information about business succession planning strategies or for assistance with developing a succession plan for your company, contact the business law attorneys at Odin, Feldman & Pittleman today.