Eric W. Seigel, Partner & Business Counsel at Tuesley Hall Konopa, LLP

Succession Planning 101 – Steps 8 through 10 – Implement But Be Flexible (Print PDF – All 4 Parts)

In my previous three posts, I discussed why business owners need to engage in succession planning (aka exit planning), listed ten steps as an overview of the planning process, and covered the first seven steps in detail.

After completing steps 1 through 7, you will have assembled your professional team, defined your personal financial objectives and timeline, determined at least an approximate value for your business, identified your desired successor, and developed and evaluated possible succession plan structures.

After all that, it is finally time for you to begin to implement your succession plan.

Step 8: 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 your personal financial objectives and desired exit timeline, approximate value of your business, and your desired successor all match up well, then it is time for you to further develop your plan. This should include a targeted timeline for beginning to implement your plan and for completion of your plan. It should also include the development of methods for building and protecting the value of your business and for transferring the business to a successor.

Examples of further plan development here might include (1) determining whether/when to begin to transfer minority ownership interests to designated family member successors or key employee successors; (2) ensuring that critical business functions can be handled by one or more key employees and that the business’ success and survival are not overly dependent on your involvement; (3) protecting the value of the business through confidentiality, non-competition, or stay bonus agreements with key employees; or (4) developing a timeline for a sale to an outside third party and possibly identifying a business broker or investment banking firm to engage for assistance with marketing the business for sale.

Step 9: If You Do Not Have a Good Fit, Go Back to Step 2 (or Step 4) and Start Over

Sometimes one or more of your personal financial objectives, desired timeline, approximate value of your business, and desired successor do not match up well.

Maybe your plan has always been to have one or more of your kids take over the business, but after going through Steps 1 through 7 you now realize that none of your kids really want to take over the family business. Or maybe they do want to but you now realize they don’t really have what it takes to manage the business successfully.

Or perhaps you were hoping to sell the business to a third party for $5 million but your professional valuation report is telling you the business is only worth $2.5 million, and that amount will not meet your personal financial objectives.

Whatever the reason, if the path you thought you were headed down is clearly not going to work, it is important that you not waste valuable time pursuing that path any further. Instead, it is time to go back to Step 2 (or Step 4) and start over because you will need to change one or more aspects of your plan. You may need to do one or more of the following: adjust your personal financial objectives; adjust your timeline; change your desired successor; or find a way to increase the value of your business.

Step 10: Once Your Plan is Developed, Implement It (But Be Prepared to Be Flexible and to Revisit the Plan Over Time As Necessary)

But, life and business often do not go according to plan. It may be a downturn in the economy, or a change in your industry, or a health issue for you or your successor, but the odds are good that your succession plan will encounter unexpected obstacles.

So, as your plan unfolds you must continue to review and revisit the plan to be sure it continues to meet your objectives and you must be prepared to be flexible and adapt the plan to changing circumstances.

Click on Succession Planning 101 – If You Plan to Succeed, You Need a Succession Plan for a downloadable PDF summary of the succession planning blogs.

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.