A bit morbid of a subject but something, as a business owner, you absolutely have to think about. This is especially relevant if you are the sole proprietor. After owning my business for almost 10 years, I thought I should think about what the hell will happen if I were to kick the bucket. I needed a succession plan.
Since I am currently going through the process, I feel like I am an expert. Here are the steps I recommend (or my lawyer told me):
- Get a lawyer, preferably one that will wine and dine you. My lawyer, Nick buys me wine and only judges me a little when I put ice in it. Here is the deal, the reason you outsource shit is because you don’t understand or possess the skills do it yourself, so why would you EVER think you can create a succession plan yourself? As far as I am concerned, this is one of the most important items you need to ensure longevity.
- Research it. Business owners need to understand that succession planning is not a form or product. According to my lawyer, Nick Reister of Smith Haughey Rice & Roegge, It is a process that should be developed around the unique traits, challenges and circumstances of you and your business. Sometimes it can take a couple of months to start, other times it may take years. The best plans are regularly (monthly, annually or every few years) reviewed and updated.
- Analyze your assets. You need to be realistic in estimating your financial needs after you leave the business. Maybe you want to change careers, or travel the world, or launch a business knitting hats for kittens. Whatever you decide, you need to talk to your lawyer to ensure you are planning for it.
- Determine business worth. Before you leave, sell the business or take on a partner you need to understand the value of what you own. You can also increase the value of the business before stepping away. Nick counsels: The value may be increased by developing and retaining key employees, by reducing the company’s dependance on the owner, or by securing longer term contracts and relationships with customers, etc.
- Appoint a head honcho. This gives me the heebie jeebies – I hold business finances very close to the chest and that means I don’t tell anyone ANYTHING but guess what…when your business grows bigger than you, it isn’t about YOU anymore. If you care about your employees and want them to be taken care of after you hand in your dance card, then you have to find someone you trust and you have to groom them to run the business.
The fact is, you need a well-developed plan that includes an estate plan with will, trust (sounds so important), business governance documents, and any other documents that are needed for the business’ circumstances, constraints and objectives.