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3 tips for establishing a business succession

On Behalf of | Oct 23, 2017 | Business Law, Estate Planning |

Owning a business is a challenge, to be sure, and it is easy to put off planning for the future. As with anything, though, getting a head start on planning is exactly what will equip you to succeed. This is especially true when it comes to determining what will happen to your business after you retire. An effective succession requires planning and research to be executed well.

Entrepreneur reports that a survey conducted by the Financial Planning Association indicates fewer than 30 percent of business owners intending to sell have established a succession plan. It is imperative that you do not neglect planning for your business’ succession—and you can start by following these tips.

Create a clear plan

You already know you need to plan, but what exactly does that entail? Your succession plan should be specific, clear and detailed. Some of the issues that should be addressed include a prospective timeline of the succession, the responsibilities you and your successor agree to and guidelines for communication between both parties. Establishing these criteria will help avoid confusion and complications.

Choose a trusted successor

Perhaps even more important than establishing a plan is choosing the right person for the job. Even the best succession plan will fail if you have chosen an unfit candidate to take over your business. It is vital you interview and carefully consider all the succession candidates you might select. If you plan to pass your business to a family member, you should still establish a thorough vetting process. 

Prioritize your finances

The financial success of your business is, of course, the foremost objective. If you are in the red, passing along or selling your business can be difficult. Be sure to adjust your financial expectations to account for the transition period of a succession. Furthermore, you should make potential successors completely aware of the financial criteria—will they need to obtain a loan, for example, or purchase with cash?