Business succession planning involves implementing strategies to determine who will take over and run a company after its current leadership is no longer in charge. Developing a business succession plan is a key step in protecting a company’s legacy and ensuring its future is in good hands. Every organization can benefit from one of these plans, but they are especially vital for closely held family businesses. If you own a family business and you haven’t considered how it will transition to the next generation, you need to speak with SederLaw.
The basics of succession planning
At some point, the leaders of any given company will retire, pass away, become incapacitated, or leave the business. The departure of any key member of the company could spell chaos. For example, if the business owner dies and it is unclear who takes over, what might happen to the company? Without a plan in place, the business may be thrown into internal power struggles and reduced productivity, among many other problems.
A business succession plan aims to avoid these issues by taking such steps as:
- Identifying the key leaders within the company, along with their skills and experience
- Naming individuals inside (or possibly outside) the business who could serve as replacements
- Training those individuals to run the company after the current leadership is gone
Why family-owned businesses need succession planning
Within the context of a family-owned business, succession planning often means preparing the next generation to take over when the time is right. While an unexpected event can overwhelm any company if it is not prepared, family businesses face a number of unique challenges that make succession planning all the more critical. Some examples are:
- Relatively limited resources. Compared to large corporations, smaller companies like family-owned businesses generally do not have the cash reserves, credit, and other support systems to weather a major storm. A disruption in leadership could, for example, trigger a lawsuit from a key stakeholder, devastating the business.
- Infighting and broken relationships. More than any other type of organization, a family-owned business is susceptible to infighting and broken relationships among its key leadership (especially family members). As one example, after a parent owner passes away, it’s not uncommon for two or more children to fight over who becomes the next owner.
- Lack of experience. Being born into a family business does not automatically endow one with the requisite knowledge and skills to be an owner. Shockingly, many businesses neglect the need to train future leaders to ensure they can successfully operate the company. A business succession plan provides for the necessary training.
- Stakeholder reluctance. Every family-owned business has some group of stakeholders whose confidence in the business is essential, from non-employed family members to non-family employees. Crises are more likely to shake the support of stakeholders, but a business succession plan can shore up their confidence.
SederLaw Helps Family Businesses Plan And Prepare for the Future
Although it’s impossible to anticipate every contingency that could befall your family business, a succession plan reduces the various risks that come when leaders exit the company and new leadership steps in. Let SederLaw’s Business & Corporate Law attorneys create a customized business succession plan that matches your company’s core values and meets its objectives.