What Is Succession Planning?
Succession planning is a process where key employees are identified who have the ability and potential to enter into leadership positions within the company. The idea is that, if any leadership positions within the organization become available, those positions are quickly and seamlessly filled with experienced and capable internal employees.
Succession planning, while not new, has gained a lot of attention recently because the baby boomers generation has created a larger gap in talented and qualified employees to fill certain positions. With less qualified people available, a market has been created to secure employees who can and will be capable of performing the duties of the baby boomer once they retire. This is where recruiting, training, retaining, development become imperative in the planning process to ensure the future success of your business.
What Type of Business Needs a Succession Plan?
Every business needs a succession plan, no matter how big or how small the company is. Surprisingly though, it may be even more important for the small business than for a larger business. Why? In many cases, small businesses are family owed and/or are closely held (meaning not publicly traded). These types of smaller businesses present unique challenges that require advanced planning and forethought.
What To Consider When Building Your Succession Plan
Circumstances will vary from business to business, so planning needs to be customized. A number of factors must be considered, a few include:
- Who will take over?
- Will management be restricted just to family? If so, do they have the requisite skills and training?
- Are any special licenses or certifications required to continue operation of the business? If so, who will be the designated back up? Will this require them to be in management?
- Do you need key man insurance?
- If you have a blended family, what conflicts can be avoided now between a surviving step-parent and the deceased owner’s children from a prior marriage?
- Should the business be sold/liquidated outright? Should the sale be limited to just family members?
- How will ownership of the company be transferred, and how quickly?
- What will be the tax consequences?
- Do you need to amend your Shareholder’s Agreement or Operating Agreement to include buy out provisions?
Objectives For Establishing A Succession Plan
These are some items you may want to begin implementing to help the process overall:
- Devise a method to help employees become committed to your business
- Provide experiences that will develop the skill set so the employee is prepared to move into the next position when needed.
- Hire employees who have the potential to grow within your organization
- Identify the employees who have leadership potential and engage that leadership.
Timeliness of Planning Is Important
These issues must be addressed early on so the business is not unduly impacted by the sudden loss of a key employee, or the untimely death of an owner. You might even consider combining your business succession planning with your general estate plan in order to ensure your intentions are considered from both perspectives.
Speak With A Knowledgeable Business Lawyer
There are a lot of things to consider when building your succession plan. Hiring an attorney simplifies the process. If you need assistance with putting together the succession plan for your business, contact our business attorneys at Platt & Westby, P.C., or call 602-277-4441 and put our experience to work for you.