Succession Plan: A Necessity for Your Successful Exit from Business

Small businesses need a succession plan because they are even more vulnerable to business continuity and employee retention issues. With a small business, there are simply fewer people to train for succession.

The challenges in a family business are even greater: who should succeed the CEO or President (usually the head of the family)? Some families go through significant turmoil trying to organize the succession as the business owner plans his or her departure. This fragments the company; and for many businesses has resulted in, at worst, a high number of business failures and, at best, higher costs.

A plan for succession should be part of all strategic business plans because every business owner eventually wants to retire or eventually leaves the business.

As the owner of the business that you have built up, you will likely want to make sure that your business is in good hands as you leave. To do that you must plan ahead.

How will you transfer ownership of your company?

• Will you sell your business to an employee or employees?
• Will you sell or give your business to family?
• Will you sell your business on the open market?
• Will you shut down your business and simply sell your assets?
• Do you have a buy/sell agreement with your partner(s)? If not, will you still want to sell your share to your partner(s); and will they want to buy?

These are all questions that can be, and should be, answered in your planning.

Your succession plan should be part of your business exit strategy, which is also part of your strategic plan. Succession should be planned well in advance of your retirement or your exiting your business - 5 to 7 years before you plan to leave is common.

Succession management needs to be a strategy of every well-run business. Effective succession planning provides for a seamless transition from you to the new owners.

If you plan to sell your business to one or more employees, you will need to develop the employee to take on additional responsibilities. Ensure that you are recruiting employees with eventually succession in mind - hire the right people! You may wish to provide access to an outside training program.

You will also need to build a successful network to help you and your succession candidate learn about the industry, and get support for the transfer of knowledge and transition from one leader to another.

Family succession planning can be the most challenging because there are usually emotions involved. Many family businesses do not survive the leaving of the founder due to family issues, infighting, or lack of the necessary skills to lead.

For example, which one of the children should be left in charge? Often the oldest feels he or she should be in charge. It is best to deal with this issue long before you exit your business. You may wish to leave one child in charge, but give (or sell) equal (or even unequal - depending on the contribution to the business) shares of the company to all the children.

You can work with a family business specialist to assess the strengths and weaknesses of family members who work in the business. The best interim approach might be to hire a general manager to run the business and work to develop the family members for added and growing responsibilities.

This management development will take time and should be started well in advance (5 to 10 years - yes, it takes time to do succession planning right) of your plans to exit.

Whomever you plan to be your successor, have them shadow you in the last year or two.

Make sure that whatever exit strategy or succession plan you follow that you get the advice of a good lawyer and a good tax accountant.

The lawyer will help you deal with the sales and/or share agreement and transfer; and the accountant will help you develop strategies to minimize the tax burden and handle the transfer of ownership transaction.

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