Passing the baton in a business ownership transfer requires a proper succession plan. To do it successfully, you must consider all facets - the logistical and legal as well as the human and relational. Both are equally important in making an ownership change. Read on for a comprehensive look at how to approach successful succession planning in all facets.
What is Succession Planning?
Before delving deeper into how to approach a successful succession, it’s important to properly define what succession planning means.
It is in its most basic form a plan for moving your business leadership from yourself to new owners or new management.
But it could also mean changing leadership throughout your business and bringing in a group of new leaders.
It could mean you alone, as an owner are stepping aside perhaps due to retirement. This plan would involve the continuation of your business under the leadership of new owners.
It can also include the evaluation of your current employees to determine who might be well suited to different positions or perhaps advancements.
It is in essence a game plan that will take your business into the future.
Now, onto how to do this successfully…
Consult The Professionals
The first step in overseeing a successful succession is to meet with your team of professionals. This will include meeting with your attorney, accountant, and risk management partner. Business attorneys will ensure that all the appropriate Transfer of Business Ownership is completed properly and everything is aboveboard.
Keep in mind that depending on your business, whether it be an LLC Sole Proprietorship, Partnership, C-Corp, S-Corp, non-profit or other, each is different and demands a slightly different method of transition when succeeding. Therefore, it’s important to ensure that you speak with the professionals whose business it is to know what needs to take place as your first step of succession.
Consider The Logistics of it All
The next consideration you need to address when approaching a succession is the logistic side of the matter. This will include determining how you want to sell your business (if that’s your goal). Do you want to consider owner finance, or do you instead prefer cash or lender finance?
Determining this at the beginning of the process will make the selling process much easier. If you aren’t sure you want to outright sell your business, you could instead opt for the reappropriation of ownership among multiple owners, lease your business or transfer the ownership via bequests or gifts. Be sure to check with your attorney or accountant first on the tax implications of this relating to the size of the gift and other requirements.
Don’t Forget The Human Element
Not to be forgotten among the legal and logistical factors, is the human element of a succession. The following are some of the notable areas you need to address, which involve the human aspect of a succession:
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Your Role:
You need to determine the scope of your role moving forward. Will you stay on at your business as an employee? Will you instead fulfill an advisory role? How often and/or how long will you stay on, or will you instead walk away completely? -
New Owners:
The human factor should also include the new owners and what their preferences are for you within the business. Do they want you to stay on? If so, what role do they desire you to play? Is there a Board of Directors or other key stockholders who need to be involved in this decision? -
Employees:
When it comes to employees, it’s important to remember that succession can cause them a great deal of angst if they aren’t sure what is planned. After all, uncertainty is often much worse than the reality of a matter.
Therefore, to ensure that your employees don’t panic and abandon ship at the first hint of change this significant, you need to make sure you address any insecurities or fears and communicate with them about what they can expect, what will stay the same, and what might be different.
Be honest and upfront with your employees. Host meetings and allow them to ask questions, express concerns and share their hopes and dreams for the future of the company.
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Customers:
Just as with employees, communication is of paramount importance when it comes to existing customer relationships. Contact your customers first before they find out about a succession via the media or other methods. Be proactive in this, as allowing them to hear about a succession second-hand can feel like a betrayal. You can easily Eblast customers, with the top 20% of your clients receiving either a personalized call or taking part in a meeting with you or your company’s leaders. -
Publicity:
Finally, you want to ensure that the overall feel of your succession is a positive one. Create a media announcement and press release or conduct a soft rollout. Aim for doing so without too much fanfare. Make sure that any introductions you do with the new owners are positive and celebrate the new business direction publicly.
Succession Can be a Positive Experience
Succession can be a scary prospect for employees who remain at the company under new ownership or management. This is understandable as it's human nature to fear the unknown.
Having a good plan in place and even doing a soft roll-out of the plan can help negate any negative feelings your employees might have about the upcoming change. It’s also important to ensure that valuable clients feel comfortable with the change and are kept abreast of what’s going on. Succession doesn’t have to be scary if you approach the process the right way, with a good actionable plan in place.
