If you own a business, you already understand the need for sound planning. Yet far too few business owners and other leaders give enough thought to planning what will happen to their companies if there’s an untimely death, serious injury, retirement, or other events. Without a clear plan in place, your business could be in jeopardy. This is where business succession planning can prove vital to the long-term prospects of your company.
Sound business succession planning can make it clear who will take over if someone dies, becomes incapacitated, or otherwise will no longer be a part of the business. A succession plan can also mitigate potential risks and losses that could arise in the event something suddenly happens to the company’s leadership. The estate planning attorneys of SederLaw can help your organization develop a comprehensive plan that will help secure its future.
Why Does My Business Need A Succession Plan?
No one knows what tomorrow will bring. An owner, partner, or senior executive could die suddenly or get into a serious accident that leaves the person incapacitated. But these aren’t the only events that could drastically change the company’s leadership. For example, at some point, the owner or other key individual will retire or possibly leave for a competitor.
The loss of someone important in your organization, no matter how it happens, could spell financial and legal problems. Your business may be left without a clear leader or plan for what to do next. This may cause internal fighting, lost productivity and revenue, and possibly even lawsuits from both inside and outside your organization.
Business succession can help avoid these and related problems. The right plan will cover any potential exigencies and facilitate a smooth event from old to new leadership. It will also be tailored to the exact circumstances and needs of your company so that the interests of both leadership and employees will be safeguarded.
Elements Of Good Business Succession Planning
Every business succession plan is different, but most will include at least the following elements:
- Process for choosing the successor. Selecting the individual to replace the departing owner, partner, or executive is a process that takes various factors into consideration. For instance, what type of business is it? Is it family-owned, closely-held, or public? What traits, skills, or experience must the successor possess?
- Establishing guidelines for the transition. When an important member of a business organization departs, the business enters into a transition phase. This is a delicate time that could make or break the company. Clear guidelines on how to smoothly transition the company, including who will be in charge, are therefore essential.
- Developing an exit strategy. This is especially useful for someone planning to leave the company, although it may be necessary for a sudden death or incapacity issue. Most owners and other important individuals cannot just walk away from a business. They have investments and other interests tied up in it. An exit strategy can help make the departure amicable for all parties.
- Buy-sell agreements. A buy-sell agreement can help ensure that a departing member receives fair value for leaving the company and parting with his or her stake in it. The agreement can dictate when an owner (or other individuals) can sell his or her interest, on what terms, and for what price. It may also specify who has the right to buy the interest.
- Conducting a proper business valuation. No business succession plan is complete without determining how to appropriately value the business. There are various ways to do so, including the asset, income, and market approaches. The right valuation protects both the departing member and those who remain behind while minimizing the likelihood of legal problems.
- Confidentiality, non-compete, and other agreements. Certain types of departures may trigger the need to protect the interests of the remaining owners, partners, and others. Confidentiality and non-compete agreements are two examples of contracts that may be necessary. Your organization should also consider protecting its trade secrets and other intellectual property rights.
These are only a handful of the matters to be considered in creating your company’s business succession plan. The exact features your business will include in its plan will depend on a thorough evaluation of your company and its values.
To help decide how to craft your company’s plan, it is helpful to consider the following objectives:
- Preventing disputes within the company. A succession plan lays out who will assume authority in the absence of an owner or other individual and how the transition will take place. This reduces the chances of unnecessary and destructive power struggles.
- Retaining essential employees. A properly drafted plan might offer incentives to keep additional leaders and key individuals from leaving your company. In the event they leave anyway, a plan will cover how to protect business assets such as intellectual property.
- Reassuring stakeholders. When investors and other stakeholders understand how your company handles emergencies and other exigent circumstances, they are more likely to stick with your company.
- Protecting institutional memory. New people who enter your organization will inevitably bring their own ideas to the company. But if your company’s goal is to protect certain traditions, the succession plan can address that.
- Reducing stress on you and others. A business succession plan reduces stress and adds a certain peace of mind, which in turn helps keep your company focused on success.
Contact Our Worcester Business Succession Planning Attorney
Life changes will impact your company’s leadership, so it must be prepared to adapt to them. Whether it’s because of something untimely like an owner’s death or because of someone planning to leave, a business cannot be successful without a succession plan. Our experienced Business and Corporate Law attorneys understand how to develop plans that protect your company and position it for future success. Contact SederLaw today to get started.