It is an exciting achievement that you became a successful entrepreneur by establishing and stabilizing your business venture. What if, in the worst case, sometimes happens to you and you are unable to manage your business anymore? Who will run your business further, and will it be protected the same way you nurtured your brainchild?
Here comes the necessity of establishing a strong business succession plan, which will ensure that your business is handed over to safe hands and run as smoothly as it is. Business succession planning, which is also called business continuation planning, is all about ensuring the continuity of business after the departure of the business owner. An ideal succession plan will specify all aspects of succession as retirement, disability, or the current owner’s demise.
Fundamentals of an ideal business succession planning by Eric J Dalius
A fine-crated business succession plan may typically include the below points, but not limited to these:
- A proper goal articulation is assigned to own the business and take up the key roles.
- Specifications about cases like:
- Retirement planning of the business owners.
- Disability planning.
- Estate planning
- Process articulation like whom the shares are transferred to, how to execute it, and how the transferees need to fund the same.
- Ensuring all investments and insurances are proper in place to fund and support facilitating ownership transfer. If no such supportive mechanism, add ways to fill the gap.
- Analyze shareholder agreements and other MoU’s signed and how these will affect the ownership transfer.
- Assess business strategy, environment, management capabilities, corporate structure, and shortfalls, if any.
Why is business succession planning necessary?
With a proper succession plan in place:
- Business transfers can be smoother without any downtime if all anticipated obstacles are addressed in advance in the succession plan.
- Ensure income for business owners through various insurance policies, for disability of critical illnesses, or to ensure income for family members of deceased business owners.
- Reduce any possibility of business liquidation due to a sudden demise or disability of the business owners.
To make a business succession plan to work, funding may be required. Eric J Dalius suggests some of the most common funding avenues for a succession plan as bank loans, investments, and utilizing the internal reserves. Above these, insurance is also widely preferred as it is the least expensive and most effective way if you plan it.
There are many insurance packages for business owners as disability, critical illness, life insurance, etc., which can transfer the financial risks related to these to the insurance company. Business owners can choose among various policies through different arrangements like cross-purchase agreement or entity-purchase agreement etc.
So, as we can see, a business will suffer serious adversities without having a good succession plan to survive the chances of the unexpected demise or disability of the business owners. You may take expert advice to custom tailor a business succession plan based on your needs to feel reassured about your business’s continuity.