Business Continuation and Succession Planning
BUSINESS CONTINUATION AND SUCCESSION PLANNING
Recent surveys suggest that a lack of succession planning is the biggest threat facing small businesses. It is also alarming to learn that family-owned businesses often don’t consider succession planning until the owner has already reached age 65. If you want your business to thrive into the future, you have to proactively focus on leadership continuity. Business Continuation and Succession Planning can help you protect your business against the loss of an owner, business partner or key employee.
Each business has unique requirements that can only be met through a customized plan that considers personal needs, the requirements of the business, and the demands of ownership transition. While there is often a tendency to rush to a solution, the most effective continuation and succession planning requires the following steps:
- An evaluation of the company vision and long range plan to determine the impact on succession issues; creation of a company vision and long range plan if one is not already in place
- An examination of the corporate structure, including the skills, duties and value of key employees and how the loss of those employees might affect the company
- An examination and confirmation of the corporate culture, management philosophies, the dynamics of internal relationships and the impact on succession planning issues
- An examination of future skills and management requirements for continuing the business into the future; identifying current internal staff skills and gaps in capabilities, and determining the potential for staff development
- Development of a model of current and future success competencies for each management position and a summary of succession readiness of each staff person or manager
- Development of a custom design training and development plan for internal staff and development of strategies for filling skills gaps from external resources
- Development of recommendations for linking succession strategies to your long range planning
- Development of a plan to facilitate implementation of the succession plan and the resulting organizational transition.
Key Employee Protection
One of the more devastating events a small business can suffer is the loss of a key employee. Often times it’s a key employee who brings a special talent to the business and is responsible for much of the success of the business owner. The loss of such a valuable asset could set the business back for a period of time, and at tremendous cost, while the business owner seeks to find a replacement, if one can be found at all.
In financial planning, we are taught that it our most valuable assets – our home, our ability to earn income, our cars – should be insured against an unexpected loss. It’s no different for business owners as the loss of a valuable business asset could imperil the business.
Buying life insurance coverage on a key employee makes good business sense. The amount of coverage should be enough to cover the costs of recruiting and paying a replacement, loss of earnings to the company, any redemption of stock or a salary continuation plan arrangement with the surviving family.
Business Succession Planning
When a business partner dies, the business loses a valuable asset and could suffer in the short term. The long term issue for surviving business owners is whether the business can survive when the partner’s family members show up for their interest in the business.
For the families of business partners, the business interest is often their biggest asset and they become the rightful owner of that interest at the death of the partner. They will want to receive their share of the business, either in direct compensation or through their participation as an active partner in the business.
If the surviving partner does not have the capital to compensate the family for their share, their options are limited and not very attractive. A business succession plan can provide for the orderly transfer of the business interest from the deceased’s family to the business.