Develop Your Succession Plan Now
If you own a business and have a succession plan in place you’re in the minority. According to a study by the Northeastern University Center for Family Businesses, approximately 70% of family businesses have no succession plan in place and less than one in three will maintain operations of the family business into the second generation.”Waiting until retirement to think about the next generation of the business puts both your family finances and the future success of the company at risk,” states Alison Southwick of the Better Business Bureau. Local attorney, Steve Romey, agrees and recommends creating a succession plan at least 5 years prior to retirement in order to be sure the business will thrive and prosper. “It’s important to have a succession plan in place early on because it takes time to identify potential candidates to become the new owner/leaders of the organization,” comments Romey. The owner needs to consider his future goals for his business and his family and it will ultimately take a team of people, including an accountant, a banker and a lawyer to create and implement the succession plan.
As part of the process, continuity planning should also be a consideration. Who is able to take over or fill in for key roles should someone in the organization suddenly take ill or die? “This involves creating backups for key positions,” explains Romey. “Cross-training on other positions and determining ahead of time who will fill these roles should something unexpected happen is important.”
If the owner decides to sell outright to someone outside of the company there are a few things he should do: One, perform a background check on the buyer to be sure they’re reputable and in a good financial position; Two, determine an appropriate down payment for the business; and Three, ensure all key positions are filled with solid performers so the business operations will transition smoothly.
In the case of a family business, oftentimes it’s difficult for the owner to step away. In this case Romey suggests creating a consultant agreement. “A consultant agreement is a contract where the current owner agrees to work a certain amount of hours the first year and gradually lessens that number of hours over the course of time. This allows the owner to gradually step away from the company while still providing input on operations.”
Effective succession planning takes time, allowing for mentoring of key positions and training if needed so the owner is confident his business will be in good hands. “If I had one piece of advice,” states Romey, “It’s to plan ahead. Don’t wait until the last minute. Otherwise it becomes crisis management.”
To learn more view the video titled “Succession Planning” featuring Steve Romey, on our website at www.cnbohio.com.