The short answer is yes. If you own a business, you probably need a business succession plan.
These plans range in scale just as companies do. You can have a small business succession plan that’s designed to ensure your heirs gain ownership of your business at the right time or help you sell your business to a partner in the future. You can also have a corporate succession plan that ensures business continuity by selecting the right talent and training them to move up within the organization as new positions open or others move up or on.
Learn more about business succession planning below, including whether or not you need to engage in these efforts. Find out how a business formation and planning attorney can help.
What Are Business Succession Plans?
A business succession plan refers to the plan you have for keeping your business running in the future, even if you or other key employees are no longer with the company. Business succession plans should be written down and include everything someone needs to facilitate the transfer of ownership, leadership, or functions to someone else.
When Do You Need a Business Succession Plan?
The only time you don’t need a succession plan at all is if you have a small business operated solely by you and you don’t plan for it to exist without you.
For example, someone who is a freelance graphic designer may have a business as a sole proprietor. They contract to provide graphic design services to businesses, and they have no plans for this arrangement to exist outside of their own work. When they retire or if they take a different career path and stop designing, they would simply let their clients know and stop doing the work.
However, if someone has built a landscaping company from the ground up and has 10 employees and many clients, they may want that work to continue even when they are done themselves. They might arrange to sell the business to a long-time employee, pass it on to a friend, or sell it to a larger landscaping business looking to acquire more equipment and the client list. All of these activities would require business succession planning.
Times you need business succession planning include, but aren’t limited to:
- Selling your business. This is true whether you’re selling to a co-worker or an employee, a business partner, a family member, an equity firm, or another business.
- Leaving the business to your heirs. If you want to ensure ownership of the business passes from you to specific other people (or one specific person) upon your death, you have to plan for it.
- Passing on control, but not ownership, of your business. If you’re ready to retire but don’t want to leave your business completely, you might choose someone to manage it for you while you continue to earn profits from it. This is still a form of succession and requires specific planning steps.
Succession Planning Within Your Business
Larger businesses have needs for business succession planning throughout the organization. Taking time to plan for succession helps support business continuity by ensuring key roles are always filled by strong candidates.
This is obviously true the higher you get to the top of the leadership structure. Changing CEOs or CFOs can be a big deal, especially since these personalities can become large parts of a brand’s image. It’s a good idea to have a comprehensive plan when one executive leaves and another takes their place to ensure the right person is selected, that they have all the knowledge and tools required to take over the job, and that the transition is communicated effectively to workers and the public.
These considerations are important in varying degrees throughout the entire structure of a business, especially if growth is occurring. A small or mid-sized business that’s growing into a larger one will create opportunities for everyone. But an individual within that structure can only move up into those opportunities if there is a succession plan that ensures someone else is ready to step into their existing roles.
An HR succession plan should include:
- Identification of key roles and plans for keeping appropriate staff in them
- Development of training, coaching, and other learning opportunities to skill up workers
- Procedures for evaluating and promoting from within when possible
- Planning for the potential loss of key leadership or other staff members and how to keep succession from disrupting business
Getting Help With Your Business Succession Planning
As a business strategy, succession planning can cross many departmental and functional boundaries. At its heart, it’s an operations mission: to create a plan that minimizes downtime and disruption when control of various functions or the entire company changes hands. It’s also a human resources, financial, and legal function.
Legal matters are especially prevalent when succession planning involves a business changing hands or growing into a new type of structure. When your plans require crossing these lines and delving into legal matters or contracts, it’s often a good idea to work with professionals. Whether you’re trying to sell your business or want to convert from a sole proprietorship to an LLC to facilitate future succession, an experienced business planning lawyer can help. Contact Crow Estate Planning & Probate today to find out more about our business law services.