Business succession planning is a crucial, but often overlooked, element of business ownership. Many business owners are so focused on growth and maintaining company success that they never have time to consider what will happen to the business after they leave or retire until the time comes.
A business owner may ask “Why is succession planning important if I’m not going to retire for several years?” While successful transitions can and do occur with little forethought or preparation, having a succession plan in place eliminates risk, worries, and confusion when the time arrives.
A business succession plan is a legal document that guides a business through a change in ownership. It covers the logistics of ownership transfer, as well as the accompanying financial decisions that will need to be made about the transfer.
Succession plans require conscious thought and decision-making about what happens to a business when the principal owner(s) exits the business, whether planned or unplanned. A well-defined succession plan will provide step-by-step instructions for the sale and leadership transitions of the business. Ideally, the succession plan will benefit all parties involved including the owner and family, the employees, the successor, and the business itself.
Succession planning is important from an operational, as well as an emotional, standpoint. Succession planning ensures the owner’s business continuity wishes are respected. It also provides peace of mind to the owner’s family members, employees, shareholders, investors, and customers.
Knowing that there is a plan in place for the successful transition of the business can greatly ease any worry the changeover may cause these interested parties. This ease of mind and clarity can help reduce staff turnover and investor pullbacks, which in turn will ensure business continuity and help maintain the business’s stability during the transition.
Although succession plans are most often associated with an owner’s retirement, they are useful even from the earliest days of the business. They ensure business success in the event of an unexpected disability, illness, or death among the ownership.
If you are wondering if your business needs a succession plan, ask yourself, “What would happen to my business if I was unable to run it?”
Would the business survive? Is anyone available to take over the day-to-day operations? How would your family or employees be affected?
Answers to these questions are only some of the benefits of succession planning.
Succession planning is important especially for businesses that have:
In general, the larger or more complex your business, the greater the need for a business succession plan, regardless of how close the owner is to retirement.
There are several options for selling or transferring ownership of a business. To ensure that your company is able to gain the benefits of succession planning, the four most common methods are briefly outlined below.
Aegis Trust Company is an ESOP transaction trustee. We help owners establish ESOPs, create succession plans, and manage the transition process. As an ESOP fiduciary trustee, we manage plan assets and monitor plan performance as an independent third-party on behalf of plan participants.
To learn more about ESOPs as a succession planning option or our services as an ESOP trustee, contact us.
Get in touch with us to see how we can help your company transition to an ESOP or provide ongoing trustee services.
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