Do I really need a business succession plan?
The United States Small Business Administration (SBA) encourages business owners to ask themselves the following questions: Can you explain change of ownership through selling, losing, or handing the business to successors? Can you explain your exit strategy? Reasons to sell or otherwise step away from a business may include a new opportunity, retirement, market changes or an offer from a competitor. The agency explains that new business owners are wise to have the answers to these questions because these things are par to fa business’ natural life cycle.
Business owners who cannot answer these questions or who are concerned their answers are no longer reflective of their business’ needs are wise to draft or revisit their business succession plans.
What is a business succession plan?
A business succession plan provides instruction for who will take over when the owner leaves the company. This can be useful when the owner is transitioning into retirement, pursuing other interests or in the event of the owner’s death. It is important to note that having a plan is not enough, business owners must share this plan and, ideally, begin training a chosen successor, to better ensure a smooth transition.
Whether looking to sell, retire, or close the business, these two broadly defined steps can help business leaders begin to draft a succession plan.
Step 1: Iron out the practical considerations
These can include:
- Software. Have information available for any software used by the company. This could include payroll software as well as programs used in your line of work.
- Online access to accounts. It is common to have online access to bank accounts or a business email account. Have this information available for your successor.
- Social media. Also have access information available if you have any social media accounts for your business, such as Facebook, Instagram, or Twitter.
- Marketing campaigns. Have information put together for any marketing campaigns. This could include use of marketing platforms like those available on Facebook as well as other, third-party vendors.
Get this information together and share it with your successor in a safe and secure fashion.
Step 2: Figure out the legal issues
In addition to practical matters, a succession plan should also address legal issues. This may include actually naming a successor. This can be done in many ways, including within an estate plan. The plan should also take into consideration potential tax implications. Examples can include potential gift or estate taxes.
These plans are not set in stone. They are fluid and can, and often should, be updated regularly to better reflect the needs of the business.