Success in business starts with careful planning. This includes preparing for changes, both expected and unexpected, to ensure that your company continues to thrive. Business succession planning exists for this very purpose, allowing businesses to respond and adapt to contingencies that may arise. If you have never developed a business succession plan, you could be unnecessarily exposing your organization to avoidable risks. But with Capstone Legal Strategies by your side, your business can continue to excel no matter what the future brings.
What Is Business Succession Planning?
A business succession plan is in many ways similar to estate planning for individuals. Company owners and top leaders will, at some point, leave the business due to life events that everyone encounters. A few common examples include retirement, death, and moving to a new company. There are also situations in which owners and others suddenly become incapacitated or contract an illness that prevents them from operating the company.
Without a business succession plan, the company could be thrust into financial and legal peril. But adopting a well-drafted, comprehensive business succession plan can avoid these and other risks.
Elements of a Business Succession Plan
The exact details of a business succession plan will vary from one company to another based on the size, industry, and structure of the business in question. Large corporations and small, closely held companies will likely have vastly different plans, for instance. In general, however, a business succession plan should include terms that address the following.
Governance
If the business does not already have a governing system, such as a board or internal policies and procedures, writing and executing these will be vital. Corporate governance broadly covers such topics as the decision-making process, ownership rights and responsibilities, and dispute resolution. Whether your organization chooses to create a board of directors or some other governing structure, this body will be called upon to implement the business succession plan.
Ownership and Leadership Transition
Creating a process for existing owners and leaders to leave the business and be replaced with new ones is core to business succession planning. You will want to have a method for selecting future owners and leaders and preparing them to step into their roles through effective training and onboarding. A successful transition plan will reduce the likelihood of significant business interruptions that could cost time, money, and precious company resources.
Emergency and Contingency Planning
Although the departure of an owner or executive can be planned, some situations simply cannot. A key figure within the business may suddenly be in an accident, lose capacity, or become ill. The business itself could face an existential threat from a natural disaster that significantly impairs its ability to operate. A business succession plan can account for and adapt to these circumstances by using disability insurance, key-man insurance, and business insurance.
Strategic Planning
A strategic plan will consider the current and potential future state of the business and where its owners and leaders would like it to head. It will take into account the resources (e.g. financial and personnel) that will be necessary to achieve significant goals and milestones over the next several years. A plan like this can guide upcoming leaders while accounting for tax, legal, financial, and other risks.
The Objectives of a Business Succession Plan
No matter the specific terms that you choose for your business succession plan, they must prepare your company to fill leadership gaps and respond to expected and unexpected changes and threats. This is especially vital for smaller businesses which have smaller financial margins to weather major storms. Without a plan, a change affecting the company or its owners and leaders could jeopardize the vitality of the business and impact other owners and employees.
These are a few basic objectives of a business succession plan:
- Keep the company running: In the absence of a plan, your business may grind to a halt because of a sudden change or crisis. A succession plan avoids disruption and promotes continuity.
- Train the next generation: The company should enact guidelines and procedures for choosing its next generation of leadership. Then, those owners or other personnel should be adequately trained.
- Avoid power struggles: If there is no succession plan, the remaining owners may be plunged into an internal power struggle over who gets to run the company. A company that develops steps to select its next leaders likely will not have to deal with this problem.
- Conserve company resources: A plan reduces the need for additional time, energy, and money being spent to defuse power struggles or handle emergencies. A smaller company especially will benefit by conserving these resources.
- Preserve important traditions: New leaders can bring new ideas, some of which may not be beneficial to your business. A succession plan can preserve important traditions that have come to define your company.
- Reassure stakeholders: Your business thrives on the support and confidence of key stakeholders like investors, customers, and the community at large. Enacting a strong succession plan signals to these groups how serious you are about steering your company through future challenges.
Contact Our Houston Business Succession Planning Attorney
Although it is impossible to predict where your business may end up down the road or the difficulties it might face, a business succession plan provides a detailed strategy to handle nearly any conceivable issues. We encourage you to protect the business you have helped build and grow by working with us to develop a customized business succession plan. Call Capstone Legal Strategies today to get started.