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8 Business Succession Planning Best Practices

Business succession planning is the documentation of logistical and financial decisions about who will take over your business upon retirement, death, or unforeseen disability.

The best plans for successful business succession are laid out in advance of any unforeseen future events.

To determine the best strategies to transfer your business in the future, we broke down these best practices that will help you with crafting a successful business succession plan.

Establishing your Business Goals & Objectives

The first step involves developing a solid understanding of the most significant challenges the company and its industry are likely to face over time.

This will include who and what skills will be needed to get through the ups and downs of your business. Begin by looking deeply into analyzing the company to figure out the best succession plans. 

  • Identify your vision, goals, and long-term objectives for the business.
  • Conduct a market analysis and financial projections for the business.
  • Identify the critical leadership and ownership involvement for the company
  • Determine your personal retirement goals and cash flow needs
  • Establish your team of professional advisors, including a business succession planning attorney, CPA, bankers, financial advisors, and insurance specialists who can advise your business succession objectives.

Determine the Key Players

  • Identify the family members who will be involved in the decision-making process.
  • Establish a method for dispute resolution if any should arise.
  • Document the business succession plan in writing and under the advisement of a business planning succession attorney.
  • Communicate your succession plan to family/stakeholders so there is clarity as to plans for the business.

Establish the Successors

Develop a successor plan for the internal management team as well as the external candidates who could be instrumental when you are ready to hand over the business.

  • Identify your successors, including managers and owners of the company.
  • Identify the family members who are active in the company as well as the family members who will not be engaged in the running of the business.
  • Determine the required training, systems, and support that need to be implemented to ensure new leadership success.
  • Define the role of the retiring owner.

Estate Planning & Asset Protection

  • Understand and address taxation implications to the owner as well as the business upon sale or transfer of ownership.
  • Determine if your estate has enough liquidity to pay for estate taxes before a transfer.
  • Speak with an estate planning attorney about all estate planning options to protect your assets.
  • Develop all estate and personal financial plans for the owner as well as other family members in succeeding generations.

Transfer Methods, Corporate Structure & Business Agreements

A best-practices transition focuses on both the onboarding process and the beginning of a new CEO’s tenure and getting up to speed. 

  • Determine the method of transfer, including outright purchase, gift/bequest, or any other combination.
  • Determine the market value of the business and any real estate pertaining to the business.
  • If the business is to be purchased, determine all financing options, including financing from an external party or owner-held loan.
  • Understand the Tax strategies and implications of specific business entity structures as well as the legal consequences of each.
  • Determine the best Business structure options (e.g., sole proprietorship, partnership, corporation, etc.)
  • Establish Business agreements.
  • Consider all the Insurance needs (health, life, disability, etc.) for secure business succession.

Contingency Planning

Determine an Exit Strategy

  • Determine the method of transfer for business succession
  • Establish the succession plan timeline as well as a follow-up plan to monitor implementation.
  • Discuss and Publish the plan so that affected individuals are aware of and understand the procedure.
  • Communicate regularly with all affected parties so everything is addressed during the succession planning stages.

Maintain the Documentation

Documentation is essential for a smooth transition. Throughout a business’ lifetime, it is necessary to maintain and update all documents periodically, including:

  • Legal will.
  • Power of attorney(s).
  • Property deeds/titles, leases, rental agreements, etc.
  • Mortgages
  • Financial statements, including any tax returns or financial records for the last five years.
  • Bank, brokerage, savings, and retirement account information.

Final Thoughts.

Implementing a successful business succession plan requires a lot of background introspection and should be included in a section of your business plan. The preparation is a complicated part of running a business that requires a lot of planning for future events. 

Planning ahead for successful succession will allow you to transfer your business in a way that you have predetermined that will benefit your future interests or stake in the growth of the company. 

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