So you’ve survived the hard part. You’ve gotten your business off the ground and past the start-up stage and you have an established, successful business. Or you have completed your purchase of an established, successful business and are past the initial transition from the previous owner. You’ve realized your dream of owning your own business. It’s all smooth sailing from here, right? Wrong.
If you’ve gotten this far, most likely you had a plan for your business and you have been executing that plan. As the saying goes, “if you fail to plan, you are planning to fail.” But typical business planning focused on growing revenue, controlling expenses, or marketing your products or services is only part of planning for long-term success. Just as important, but often neglected (or overlooked entirely) by business owners, is business succession planning (also sometimes called exit planning).
For many businesses, and especially for businesses that are owned and operated by the founder or founders of the business, much of the success of the business is directly attributable to the business owner. It may be your entrepreneurial spirit, or the force of your personality, or your technical expertise, or some combination of all of those. But like it or not you aren’t going to be around forever. And even if you could figure out a way to achieve immortality, presumably you would like to be able to exit the business at some point and more fully enjoy the fruits of your labor. And for many business owners, their business has been a labor of love and they want their business (like their children) to be successful long after they are gone.
Developing, and then implementing, a good succession plan is an answer to the question of how you can maintain and realize the value of your business, ensure its long-term success, and exit the business on your terms and on your timeline.
How do you develop and implement a good succession plan? Here are ten steps that provide an overview of the process:
- Assemble Your Professional Team (Financial Planning, Tax, Legal, and Insurance)
- Define Your Desired Personal Financial Objectives and Exit Timeline
- Determine the Value of Your Business
- Identify Your Desired Successor (Family, Key Employee, Third Party)
- Assess Possible Succession Plan Structures Based on 2 through 4
- Evaluate the Financial Fit of the Possible Structures With Your Desired Personal Financial Objectives and Exit Timeline
- Evaluate the Interpersonal and Psychological Fit of the Desired Successor With You and the Business
- If You Have a Good Fit, Further Develop the Plan, Including the Timeline and Methods for Building and Protecting the Value of the Business and for Transferring the Business to the Successor
- If You Do Not Have a Good Fit, Go Back to Step 2 (or Step 4) and Start Over
- Once Your Plan is Developed, Implement It (But Be Prepared to Be Flexible and to Revisit the Plan Over Time As Necessary)
Stay tuned for follow-up posts discussing these steps in further detail.
Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation.