How do you create a succession plan?

Tim McDaniel | April 18th, 2012

One measure of great business leaders is that their businesses continue to thrive once they leave their positions.  Visionary leaders captain the ship today while making plans for someone else to take the helm tomorrow.  Proactive succession planning allows businesses to continue their smooth sailing long after the captain abandons ship.

Planning for Business Transition

Unfortunately, for many businesses, the transition in leadership isn’t so smooth.  It’s estimated that over 90% of American businesses are family owned and that the majority of these businesses have no written or formal plan for ownership succession.  Without a succession plan, many of these businesses are doomed to failure.  This is evident by the statistic that 40% of closely-held businesses fail to make it to the second generation and 90% fail to make it to the third generation.

A succession plan isn’t just a matter of saying, “I’m leaving the business to John, Jr.”  Proper succession planning requires great skill in the areas of taxation, valuation, mergers & acquisition, family relations, evaluation of talent and a host of other items.   In addition, it requires the business owner to confront some personal or family issues, like deciding if a family member is really competent to run the business, which most people might rather avoid.

Over my 20 years of experience, I’ve seen that the vast majority of business owners have inadequate succession plans.  Unfortunately, this is a case where failing to plan is often planning to fail; businesses without a succession plan often flounder in their owners’ absence.   Succession planning is an important issue, but there is no sense of urgency about it until the owner is faced with a pressing need to leave the business.  As with any scheme, a hastily sketched succession plan may lead to the business’s failure.

Succession Plan Options

Many business owners put off succession planning because it can seem too tough to tackle.  There is no one “right answer,” but there are a number of good options.  Owners have the following possibilities when transferring a business interest. (These are listed in order of which usually produces the least amount of cash proceeds for the business owner.)

  1. Liquidation
  2. Gifting to Family members
  3. Selling to Employees or Family Members
  4. Selling to an Employee Stock Ownership Plan (ESOP)
  5. Selling to a financial buyer
  6. Selling to a strategic buyer

Ohio Business Planning Seminar

With all the options, it can be hard to determine which type of succession plan is right for your business.  Luckily, this isn’t a decision that you have to make alone.  Over the course of my career, I’ve helped countless business owners to plan for the future of their businesses.  I’ll be sharing what I’ve learned at a seminar at the Polaris Hilton in Columbus, Ohio on the morning of May 10.  I hope that you can join me over breakfast to discuss succession planning and what’s right for your business.

Contact our Ohio Succession Plan Experts

Want to develop a succession plan, but can’t attend our business exit planning seminar?  Want to speak to an Ohio succession planning specialist to review which options are best for you and your business?  Contact Rea & Associates for assistance.  Our Ohio Business Valuations and Transaction Analysis teams will help you ensure that your business continues its smooth sailing.

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