6 essentials steps to effective succession planning
To ensure a successful transition to a new owner for your business, you should start planning early and make your succession plan a core part of your operation’s strategic plan.
It’s also important to give yourself enough time to put your plan into action. A transition plan may take two to five years to develop. But procrastinating can prove to be very costly.
Start planning today
Having a succession plan in place will protect the value of your business should any unforeseen event force you to exit your business in a hurry.
Here are six essential steps to remember as you start planning.
Get advice—Be sure to consult early and often with key advisors, including your bankers and other financial partners, your accountant, your lawyer and your advisory board, if you have one. To help plan your succession, you may also want to hire a consultant who specializes in business successions and/or mergers and acquisitions.
Choose the type of successor—You will have to decide who you want to pass the business on to—a family member, company insiders (members of your management team, employees or both) or an outside buyer. Also, consider how much, if at all, you want to remain involved in the business after the transition, so you can structure the transaction accordingly.
Prepare your successor—In the case of family or insider successions, think about what skills or qualifications your successors will need and how you will get them ready. The training process can take years—another reason you shouldn’t wait to get started with your preparations.
Structure the transaction—Consider the details of the actual transfer of ownership. These include valuation, financing, tax considerations, the legal structure of the new business and a timetable for the transaction.
Plan the handover—Don’t overlook the very important task of planning the handover of the business. An ownership succession can be stressful and disruptive not only for the departing owner, but also for employees, customers and suppliers. You should come up with a plan to ensure open and consistent communications with these stakeholders throughout the transition.
Review your plan—Your plan is never really done. Review it regularly to keep it up to date.
To learn more, download our guide on selling your business.