Succession plans are specific instructions for who will take over a business if you retire, leave the company or become incapacitated. Having one in place allows you to choose who you think will be the most successful candidate to take over your role. It can also outline specific tasks the successor will be responsible for. It may also include details about what will be done with your share of the business.
If you are not near retirement age, this may not seem like a necessary document to draft up. Many small business owners also feel this way, which is why almost 60% of small businesses don’t have a succession plan in place.
Why a succession plan is so important
Even for business owners who are sure they will be with the company they run for years to come, succession plans are crucial for long-term success spanning multiple owners. The plan would also be used in case of any unfortunate turn of events that may take you away from the business you currently run. This makes them useful for many reasons, but crucial for two specifically:
- Choosing a strong successor:Not everyone has the same ability to lead—identifying who you believe has strong leadership qualities, good decision-making capabilities and keen business skills could go a long way to ensure the company thrives even if you are no longer there.
- Creating a buy-sell agreement: Putting into writing what will happen to your share of the business should you leave the company. It is easier to come to an agreement with all parties involved when you have no plans of leaving and there is no sense of urgency involved.
In the case of a family business, it could create rifts not only in the business, but also between family members. If more than on person believes they are right for the job it could lead to a prolonged struggle with emotional consequences.
It is therefore very important to think carefully about whether a succession plan might be useful to your company before going without one. In some cases, such as when there are multiple partners involved, it may not be as critical, but for sole proprietorships and small businesses it can often be beneficial in case the unexpected happens.