How Business Succession Planning Can Protect Business Owners
Starting any business is difficult. One of the biggest challenges business owners face is what they will do if they are no longer able to run their company. Many enter into tax planning to protect themselves and their loved ones against the financial risks associated with this possibility. Business succession planning provides them with an opportunity to plan for that event, but it also entails many social and emotional consequences as well.
Business succession plans are different from estate planning or tax planning. While these types of plans may help the owners protect what they own, business succession plans are focused on how the owner will continue to run their business after they are unable to do so themselves.
Succession planning means that you have a plan in place which allows you to remain involved in your company even when you can no longer be physically there. Some common reasons for this include: The physical location of the owner is too far away from their operations, The owner has conditions in which they cannot travel anymore due to illness or other reasons, and The owner’s health takes a turn for the worse resulting in an inability to perform daily tasks.
Business succession begins by determining how critical it is for your type of business to have a successor lined up before its owner passes or becomes unable to continue operating it. Some businesses are time-sensitive in achieving this goal because, without someone who can run the business immediately upon passage, its profits will dry up quickly. Other companies don’t necessarily need a qualified replacement right away, but they should have one in place just the same.
Succession plans may also include how to transfer the business itself. If the owner’s interest is sold to someone else, new management can be brought on board more easily if a plan for this eventuality was already in place. Someone who buys an established business will likely have their own ideas about how it should operate and won’t want to work with existing managers so closely tied to the previous owner. Having a consistent transition of power helps smooth out relationships between incoming and outgoing owners regardless of whether or not they are related by blood or marriage.
Another critical part of succession planning is determining how family members will take over ownership of a business. This can be particularly difficult when both parents wish for their children to take over the family business, but only one must. These kinds of decisions are usually made by talking to family members and getting their input into what they might like to do down the road. It’s also helpful for parents to talk with their children about how interested they really are in taking on all of the responsibilities associated with owning a business before making an affirmative decision about whether or not it should move forward.
The next part of succession planning is determining how much management power each owner will receive after taking over the business. This is particularly difficult because if one person was clearly designated as being in charge when they were not involved in running day-to-day operations, that can create resentment among other family members who were more actively involved in running the business. For this reason, it’s sometimes wise to allow each family member who wants a role in the company to have an opportunity within that organization so they feel properly rewarded and invested for their part in ensuring its continued success.
Succession planning also has emotional consequences for both business owners and family members. It can be hard for any owner to let go of control of a business they worked extremely hard on over the years. Young adults may be ready to take on more responsibility, but some older individuals do not want to give up anything as long as they are able. In these cases, respecting someone’s wishes after their passing is very important – even if those desires might make your job easier down the road!
Writing a succession plan is one of the best ways to protect your business, its future success, and yourself. By involving family members in all sides of this process you’re ensuring that not only is the business protected but also your relationship with everyone who’s affected by your decisions.
Starting any business is difficult. One of the biggest challenges business owners face is what they will do if they are no longer able to run their company. Many enter into tax planning to protect themselves and their loved ones against the financial risks associated with this possibility. Business succession planning provides them with an…