You may have achieved your dream 15 years ago. You launched your own business and now have seen it succeed and grow. Now, you are thinking ahead. You might want to retire in 10 years. Yet, who will take over your business then?
You might not realize that more than half of business owners – 58% – have not created a business succession plan. If you are planning ahead for retirement or want to protect your business in case you pass away suddenly or become incapacitated, having a succession plan is vital. With a succession plan in place, you can help train key employees how to run your business in your absence and will have a plan on how to fund the transfer of ownership for your business.
Here are five tips to keep in mind when creating a business succession plan:
1. Find a successor. If you run a family business, is one of your children interested in running the business in the future? Is another family member qualified to take on the business in your absence? Or do you have a longtime key employee whom you think will be the best fit to take over once you retire or can no longer run your business? You want to think about each potential successor’s strengths and weaknesses and gauge their interest in ultimately running the business.
2. Provide additional training to a potential successor and other employees so they are ready to take on new responsibilities in your absence.
3. Make sure you regularly update your documents detailing your standard of operating procedures and employee handbook, so no one will be in the dark on how to run your business.
4. Keep your succession plan in mind as you make future hires, so you know your business’ most important positions have qualified employees doing them.
5. Consider how your successor will purchase your business. Do you need to create a buy/sell agreement before you retire? Will your children receive the business in your estate plan or will your life insurance policy cover the purchase of the business?
You should work closely with an attorney as you create your business succession plan. A business law attorney can create a buy/sell agreement if you will need that and ensure other important details are addressed in your plan.
It may be hard to think about turning your business over someday. However, if you don’t want your business to suffer when you retire or if you die suddenly, having a business succession plan can help ensure your business’ success for the long-term.