If you’re a business owner, owning and operating your business is likely akin to creating your legacy – one that, with proper planning, will carry on long after you retire or leave the business. Therefore, if you haven’t started thinking about business succession planning, now is the time to start.
Unlike the TV show of the same name, succession planning can be a drama-free and straightforward way to set up family members or other key players to assume control of your business when the time comes to hand over control. Below, we’ll explain what you need to know about business succession planning.
What is Business Succession Planning?
Business succession planning refers to transferring your business’s ownership and management to a new owner or owner. These new owners could be immediate family members (for example, your children) or other key business members. In some cases, you may even look beyond your family or business and leave your business in the hands of an outside buyer or community member.
Why is Business Succession Planning Important?
Business succession planning is essential for any business owner who cares about the long-term success of their business. A comprehensive business succession plan helps business owners ensure that their business will continue to operate regardless of whether they retire, sell the business, or pass it on to family members.
Beyond the continuous operation of your business, a comprehensive business succession plan will help preserve the legacy of your business, minimize any disruptions to business, and maximize the ongoing value of your business by ensuring that your successors have the know-how and resources needed to continue to operate the business competently.
Elements of a Comprehensive Business Succession Plan
What does a comprehensive business succession plan look like? As every business is different, you’ll naturally see variations in how different business owners set up their succession plans.
However, every business owner should consider several key elements of a comprehensive business succession plan. Below, we’ve outlined just a few of them.
A Clear Plan
A comprehensive business succession plan needs to start with a plan! If you haven’t started thinking about your plan, now is the perfect time to start. Your plan should address issues like how the purchase (if applicable) and transfer of ownership will occur, the role of the new owner (or owners), how the business will be valued, and the tax and legal implications of the succession. Consult with an experienced business lawyer to ensure all your bases are covered and properly documented as you work through your plan.
Identified Successors
You’ll want to think critically about who you want to take over your business for you (even if you aren’t sure who that person or people will be!). For example, do you plan to have your children take over your business? Do you want a management team member to take over? Or are you planning to sell your business to the highest bidder? Whatever the case, identifying your successors is key to developing a succession strategy, as your plan will likely change depending on who you plan to leave in charge.
A Succession Strategy
What will your successors need from you to succeed as they assume ownership of your business? Sometimes, a business succession plan will require training your successors long before they assume control of your business (for example, training a family member) to ensure that your business has the leadership and expertise it needs to continue to grow and thrive.
Financial Planning
Financial planning is essential for any business. In the succession context, you’ll want to think about financial planning from at least two angles. First, what must you do before succession to ensure your business remains financially viable? And second, once your business succession plan is in play, what financial involvement will you continue to have (if any)? If your successor is purchasing your business, what does that purchase arrangement look like? The latter consideration is especially critical for business succession plans where the original owner is retiring, as a well-thought-out business succession plan will need to consider your financial security in retirement.
Planning for the Unexpected
Sometimes, life throws us curveballs, so business succession planning should also consider the unexpected. For example, what happens if you pass away before you have time to implement your business succession plan?
Estate planning is another essential tool for business owners – and, in addition to your personal estate planning, you should also consider creating a corporate will. A corporate will (or “secondary will”) is an estate planning document that directs how your business interests will be handled after you pass away.
Be sure to consult with lawyers specializing in business law and estate law for assistance here – they will be able to work with you to create your corporate estate plan in tandem with your business succession plan, ensuring that every contingency is accounted for.
Have a Backup Plan
Having a “Plan B” in place is another prudent step for comprehensive business succession planning. For example, what happens if your child (who you have identified as your successor in your business succession plan) cannot take over the family business down the line? Creating a contingency plan will help bring peace of mind if matters outside your control require a change of plan.
Final Tips for Business Succession Planning
You should be familiar with many of the comprehensive business succession planning elements by now. Below, we’ve outlined a few final tips that will help you make the most of your plan and help ensure a seamless transition when the time comes to transfer ownership of your business:
- Review your plan regularly: Be sure to review and update your plan regularly (ideally, in consultation with your successors) to ensure that everyone is on the same page and your plan remains current.
- Document, document, document: There’s rarely such a thing as too much documentation – this is equally true in business succession planning. Ensure that your plan is well-documented and your successors have all the information they need when the time comes to take over your business.
- Communicate, communicate, communicate: There should be no surprises regarding business succession planning – speak to your potential successors and other key stakeholders (such as certain employees) to ensure a smooth transition and prevent any misunderstandings or conflicts. Be sure to update your successors and stakeholders if you make any changes to your plan.
The Business Lawyers at Tierney Stauffer LLP in Ottawa Advise Clients On Succession Planning
At Tierney Stauffer LLP, our business and estate lawyers team is committed to providing comprehensive, forward-thinking, and practical advice to our corporate clients, no matter the size of the operation. Our team of lawyers has extensive experience in all business law matters, from real estate to licensing and business succession.
Call us at 1-888-799-8057 or contact us online to set up a consultation with an experienced business lawyer.