Planning For Succession

Planning For Succession
by Takara Alexis

Entrepreneurs tend to spend a lot of time building their business, they give little thought to how they will leave it and sometimes get side tracked by the amount of time it takes to establish and carry out an effective succession plan.

Owners seem to sometimes associate succession planning with choosing a successor. The first step, however, lies in an analysis of what has made the business successful. Does that success rely on ability or knowledge you as the owner have that would leave when you leave? Often that is the case of sole- practitioners such as lawyers or doctors - unless they have the foresight to bring in a junior practitioner who could possibly take over at some point.

Additional success questions to consider: current and future market competition, necessary technology infrastructure, talent of existing employees, and style of management. Answers to these questions can provide the basis for decisions on whether the business can continue without you, how it would continue without you and which person would lead it.

Personal financial planning will play a role in the succession plan whether you wish to sell the business to an outsider or progressively transfer your interest to a main employee or family member. If you sell and receive a large lump-sum payment, you will to plan what you'll do with the earnings. Advice from accounting and investment experts can help with strategies to lower your taxes on the sale.

If you plan on transferring the business to a key worker or a someone in your family, your personal financial plan should focus on long-term capital accumulation to provide cash for living expenses to replace the income you received from your company's profits. Developing that cushion takes awhile, but it will give you not only needed funds but the freedom to allow your successor opportunities to learn and make mistakes, without abusing your livelihood.

Entrepreneurs, mainly those with family members involved in the business, commonly dread actually naming a successor because they expect it will cause arguments among employees and members of their family. Again, having an analysis of the business and its needs for the future to keep its success gives you a platform from which to talk about issues with those affected. Open communication plays a crucial role in smoothing the path for your successor.

Communication will be key as you develop the person you chose to assume leadership. While you may be tempted to pass on everything you know to your successor, be sure to listen carefully and give the person some room to learn from experience or try new ways of doing things. Stay true to what has made your company successful, but recognize that your successor needs to prove his or her value to employees and customers and may actually have ideas for making the business better.

Planning how you'll leave your business can be emotionally draining as well as, financially and logistically difficult. Involving your key trusted advisors and seeking assistance from succession planning professionals can help you look at important details while keeping the big picture in focus. Begin early, so you will have enough time to create, finance and carry out a successful succession plan.