We’ve all been guilty of putting off crucial tasks because they take too much time or are too stressful. Transitioning a company can be a frightening process for many business owners. However, having a solid plan in place for a long-term strategy is essential.
Survey results from U.S. Trust in 2015 show that the top reasons for delaying business succession planning include:
- Several critical decisions about the company’s future management have not been made.
- Their family members and/or coworkers are not aware of their long-term goals and desires, according to the owners.
- Owners have no intentions of retiring anytime soon.
- To ensure that their wishes are carried out, a will must be drawn up.
- When it comes to succession planning, business owners are simply too busy to do so.
It’s understandable that the process might be delayed for many reasons, but planning ahead of time will spare you the anxiety of not knowing what to do in the event of the unexpected. Here are some of the questions that may arise.
Here are 5 crucial questions to ask when succession planning
Q1: Can the business be passed on to the next generation?
Some businesses have only one family member who is knowledgeable about the company – the proprietor of the business. Conflicting interests can arise between family members (who may now control a firm they have no knowledge of) and those who remain in the company as partners or employees.
Q2: Who will be in charge of day-to-day operations and leadership?
Is there a trusted employee or a trusted partner who can ensure that critical business processes are not disrupted during this time? If this isn’t the case, the value of the company could plummet unexpectedly. A “fire sale” atmosphere could result, leaving the heirs with no choice but to sell their assets at a high price to the highest bidder (if there is one).
Q3: What is the remuneration structure for employees and owners if new owners are not actively participating in the organization?
People who are left in charge of running a firm expect to be handsomely compensated. The owner’s family may also require a steady stream of income. What’s the greatest strategy to ensure that everyone’s financial needs are adequately met?
Q4: Suppose one of the partners dies or is no longer able to participate in the day-to-day running of the business. What plan is in place if such an event was to occur?
Assuming a possible buyout, how would the company be valued and how much money will be available if the worst happens? It is possible to turn a tough issue into an immediate course of action that provides a fair solution to all parties concerned with a little planning and documentation.
Q5: With multiple heirs, what will happen to the children who are not participating in the business if only one is interested?
In many cases, family business owners desire to pass the firm on to a child who has shown an interest in it. They may also want to ensure that other youngsters are not left out in the cold. If one kid is unfairly favored over another, estate equalization techniques can aid. When it comes to children who want to pursue other hobbies, it may prevent a forced sale of the firm to pay them.
A business succession plan requires time and effort, but the payoff can be enormous when the time comes to pass it on to the next generation. Having a strategy in place will not only make the owner’s preferences obvious, but it will also make the transition a lot easier.