Here’s something morbid but essential to remember. As a business owner, you may be focussed heavily on maintaining the business internally. Actual job. But one day you will no longer be the owner of that business. You’ll either change job or retire, or you’ll become incapacitated or die. Hey, I told you this was going to be a morbid thing to remember!
Because of the morbidity, most business owners just don’t think about it. But a succession plan is essential. If you don’t develop a strong succession plan now, you’re putting your business at risk. Here’s a fact that should highlight the importance. In the United States, 80-90% of businesses are family owned. But less than a third of those companies make it into the second generation. Only 10% make in into the third. Read more about this data at the Harvard Business Review.
Here are the problems that often plague businesses without a potent succession plan.
Conflict of interests
If you leave it up to fate, then you have no idea who will be the leader when you depart. The problem is that people often believe that their company already has a rigid set of values and interests. It simply wouldn’t be practical for anyone to take over the company and flagrantly go against those interests.
But this outcome is possible. It may result in the business failing. It may even be profitable for your company but at the expense of the values you worked hard to keep to during your tenure. So it’s vital that you know who the next owner might be before you go. Develop a strong set of candidates that you can trust, who you know share your interests and aspirations for the company in the long-term.
Financial
The financial situation can go absolutely haywire when the business owner goes. You’ve probably heard this already, but financial issues are pretty much the very last thing a business needs!
What are the tax implications to your business if you were to go? What about ownership of shares? If the shares pass on to your next of kin and they have conflicts of interests with the other shareholders then your senior management have a problem.
With that in mind, you also need to consider the income to you next of kin should you pass away. Do you need the business to continue providing income to your family? The best thing to do is have these situations reviewed by an organization such as Verdure financial planning services. Best to do this before, not after!
Legal
There are bound to be issues with estate when the business owner leaves. Think about the property you’re renting to hold your offices. If your name is on the contract with the landlord then what happens?
There may also be legal implications for your business with the government.You registered as a business with the government (Right? Otherwise you’re breaking the law by operating!), which means that they may get involved too. Consider hiring a business attorney. And no, a business attorney and a financial planner are not interchangeable! The legal and financial dealings are very distinct things for which you need experts.
Writing a good succession plan is like writing a will. We don’t want to do it. But, of course, it’s extremely important that we do. Develop yours as soon as possible.
