What is Business Succession Planning?
Business succession planning is a series of decisions about who will take over your business in the event of your retirement, disability or death. This includes logistical as well as important financial business decisions.
The succession planning process involves ways to transfer ownership of your business. Whether you are creating succession planning for a small-scale business, a large organization like a major corporation, a non-profit organization, or a government organization, the process boils down to a few common steps.
Reasons for Succession Planning
Before chalking out a succession plan for your business, think about why you want to create a succession plan. What are your objectives of succession planning? Are you worried about illness, or an unexpected exit? Are you anticipating offers for your business? Are you planning to retire? Clarifying your reason for developing a business succession plan will help you concept one that truly meets your needs.
Keep in mind that while constructing a business succession plan, you need to anticipate changes in market trends, and accordingly assign people in key positions. In other words, you need to anticipate factors that may influence the success of your succession plan.
The first point to consider in business succession planning is whether your business will continue to operate after you depart. Some business owners choose to close the business and liquidate their assets. Whereas others choose for an exit out of the company, handing over the business to someone they trust. If you decide that your business should continue, one of the most important decisions is choosing a successor.
Importance of Succession Planning in Family Business
Choosing a Successor
It is important that you give ample thought to who your successor should be. A successor is chosen by appointing a key employee, family member, friend, or another individual in your place. Designating a successor in advance will help keep your peace in case of any unforeseen eventuality. It will also simplify the transition process and set appropriate expectations for everyone involved, causing less distress.
Many businesses take out bank loans or other lines of credit as a loan against property that provides them with the capital to run their companies. What many people don’t realize is that, upon their departure from business due to death or disability, the lending institutions have all the rights to force repayment of the loans and foreclose the business if need be.
A business succession plan takes outstanding debt into account and provides vital information on how the debt should be managed after the business is handed over. Assets to be used in the repayment of loans should be clearly outlined in the succession plan.
Following are a few ways of going about business succession:
- Selling your own interests and shares to a co-owner(s).
- Passing ownership interests to a family member.
- Passing or selling your business ownership to a key employee.
- Selling your business to another bigger organization or to an entrepreneur
Advantages of Succession Planning
In addition to providing guidance for the continued operation of the business, employees can feel secure in their jobs. In order to write a succession plan, the first step would be to identify what your ideal succession scenario would be and then determine the bestselling arrangement accordingly. This usually involves a buy-sell agreement, secured with additional documents like insurance policies.
Business succession planning is an important component of operating a business and is as important as a contingency plan. This is especially true for small-time business owners and owners who are nearing retirement. It helps to create a business succession arrangement early in your business career, as it aids in a smooth transition and minimizes any possible adverse effects of your departure. You could also consider approaching top market research companies to conduct a survey and arrive at a business decision accordingly.
As always, it is essential to properly document and finalizes your business succession plans. If you are a business owner, you may contact an attorney or a business consultant, who will set you up with a knowledgeable attorney in your area to create a business succession plan for your company in accordance with your objectives and vision. If you are in plans of creating a business succession plan for your company and don’t know how to go about it, you can contact us today. Ourbusinessladder is one of the leading business consulting firms in India and one of the top market research companies in Pune. If you are searching for market research companies in Pune, look no further. We are the one stop solution for existing businesses and enterprising entrepreneurs.