When you own your own business, you have a lot of responsibilities. You not only need to make decisions about how your business will operate on a day-to-day basis, but you need to think of your business’ future too. One key to ensuring your business’s long-term success is to develop a business succession plan.
However, many business owners put off creating a business succession plan. In fact, according to a Wilmington Trust survey, only 60% of small business owners have a business succession plan in place.
Why businesses owners need a business succession plan
Without a business succession plan, your business could falter – even fail – if you were to fall ill, or pass away, suddenly. Just as you create an estate plan to ensure your assets will be handled the way you want, you want to have a business succession plan so your employees and customers can have a smooth transition when you are no longer running the business.
What to include in a business succession plan
Here are five key areas to address in your business succession plan:
- Potential successors. Ideally, you will have a potential successor identified and your successor will have agreed to take on the business in the future. This successor could be a co-owner, a longtime key employee ready to take on ownership, an heir or an outside party.
- A succession timeline. Once you have a successor identified, you can work toward creating a succession timeline. This can include time to train your successor, an exact date to turn the business over or detail the circumstances in which you will turn the business over.
- Your business’s valuation. You will need to know the value of your business to sell it to someone else. If you plan to turn the business over in five or 10 years, you’ll need to have its value determined periodically, to make the transition smoother in case of an emergency.
- The funding for your business’ succession. You need to outline how your successor will purchase the business. Will this be completed through a loan? Will you pass it down to an heir by cashing in a life insurance policy or through a trust? This information should be included in your business succession plan.
- Any important business operating procedures, employee manuals or training information. With a collection of these documents already prepared, your successor will be able to easily continue to operate the business in the same way you have.
Creating a business succession plan with the help of a business law or estate planning attorney always is a good idea, even if you are younger and plan to run the business for years. You never know what life might bring. Having a plan for your business will ensure it can continue to operate smoothly no matter what happens.