5 Goals of Business Succession Planning
Ownership, management, and control of a small firm will pass to someone else when the owner retires or dies unless the business is shut down.
Here are 5 goals to shoot for when involved in business succession planning
Goal #1: Having a Strategy
Goal #2: Take Account of Continued Existence and Success
Goal #3: Balance Between Success and Fair
Goal #4: Match Incentives With All Stakeholders
Goal #5: Trust and Confidence Between All Stakeholders
Goal #1: Having a Strategy
When it comes to business succession, having a strategy is key. Most successful businesses have five-part succession plans that are tailored to the company’s specific needs, frequently aided by outside experts.
I use the terms “senior generation” and “junior generation” interchangeably when talking about succession planning for businesses because age and role do not necessarily correspond.
A solid business succession plan will be:
#1. In writing
#2. Will secure the financial health of the company
#3. While matching the interests of all stakeholders
#4. Being fair to all stakeholders
#5. Capturing the wisdom of the elder generation
#6. And the energy and ideas of the younger generation.
The memory of a human being is often unreliable. Even when we put in our best effort to recall details, mistakes can still occur. This is especially true in light of the difficulties associated with corporate succession. Any criteria in a succession plan that are subjective can be captured in writing by a skilled lawyer. In order to avoid confusion in the future, succession plans should be formalized and documented in writing
Goal #2: Take Account of Continued Existence and Success
Second, a buy-sell agreement might easily be a corporate succession plan.
Farms, grain elevators, and other businesses with large inventories and resources on “standby” (compared to the investment size) have high overhead and low returns (compared to the investment size), making it difficult or impossible for the senior generation to simply sell the business to the junior generation.
Junior generation may as well buy any other firm (even a competitor) if they are going to pay “full retail price” (if that is even financially doable).
To put it another way, the strategy must take into account factors that raise the chances of the company’s continued existence and future success.
Goal #3: Balance Between Success and Fair
The strategy should strike a balance between maximizing the chances of company success while also treating all stakeholders equally.
Those stakeholders often include non-business family members or significant employees who will not become shareholders.
This does not mean that stakeholders should be treated equally financially, but it almost usually involves a great deal of communication and buy-in from all parties involved to be considered “fair.”
Goal #4: Match Incentives With All Stakeholders
The greatest strategy to secure “buy-in” is to match incentives with all stakeholders.
The finest business succession plans ensure that everyone benefits financially when the company does well (sometimes even years after ownership has transferred).
This ensures that everyone is pulling in the same direction in the boat.
Goal #5: Trust and Confidence Between All Stakeholders
Lastly, trust must be created between all stakeholders in order to gain the confidence of everyone (even if they are not directly/immediately involved) to “hitch their wagons to each other’s wagons.
The senior and junior generations must coexist/co-own/co-manage for a few years before this may happen in most businesses.
Attorneys who are good at their jobs may assist in organizing this process, even down to the smallest of things like where various people physically sit in the office to promote the finest possible blend of older generation wisdom and younger generation energy and ideas.
