3 Succession Planning Best Practices You Need to Consider
2020-04-14 | by Gene Reynolds
As you approach retirement age, you may start thinking about succession planning for your small business. You need a plan to protect the business that you’ve worked so hard to build. A succession plan gives you peace of mind and prepares your business for when you’re gone, or in case the unexpected happens.
Even though it’s an important task for business owners, you may feel nervous or avoidant when it comes to succession planning. That’s understandable, and it’s why we’ve broken down the process into multiple steps to make it easier.
Fortunately, you already know who to involve when you begin the succession planning process. Now, consider these succession planning best practices to gain more confidence in the task.
Position Your Company to Continue On
A succession plan should include the logistics of what will happen after your tenure ends. Here are some of the key steps in creating a comprehensive succession plan for your business:
- Build a timeline. When would a succession take place? Is it in the event of incapacitation, or on a chosen date when you’re ready to retire from day-to-day operations?
- Choose a successor. Who will take over ownership? A co-owner, heir, key employee, external candidate, or outside party?
- Document your operations. No matter who takes over, you need a standard operating procedures document so that your successor is up-to-speed when you’re no longer in charge.
- Value your business. Find out what your business is worth and what it could possibly sell for as you consider future options for the company.
- Explain how your succession will be funded. To complete the transaction, will your business be purchased through a loan, seller financing, life insurance, or another option?
The last two steps in the logistics plan can be complicated. A professional CPA experienced in succession planning can help.
Position Your Company For Growth and Success
You don’t just want your company to “keep going” after you’ve moved out of the owner’s office. You want it to grow and find success. That’s why your succession planning process should take into account possible changes in the industry, company roles, and employee development.
Here are questions you can ask to prepare your company for success after your tenure:
- Are there possible tax law updates that can affect your business?
- Are there new upcoming developments in the industry that may affect your business?
- What challenges is the company facing now? What might it face in the next five years?
Company roles and employee development
- Are all family members in your family-owned business committed to the company’s future?
- Which internal employees are good candidates for leadership in the future?
- What kind of training and development resources are available for internal candidates?
- What opportunities for other employees will be available after promotions and leadership changes occur?
When you consider how your leaving will affect the framework and hierarchy of your entire company, you’ll be able to better position the business for stable growth and success.
Get Your Family Onboard With Succession Planning
Whether your family members are professionally involved with your business or not, it’s important to include them in succession planning.
Involving your spouse, children, and other key family members early on in the process can give you valuable insight and perspective that you may not get from other employees in the company.
Additionally, if your family is involved in day-to-day operations of the business, they need to know how you’re thinking about whether to keep the business in the family or to seek an outside buyer. These conversations should happen as early as possible in the process to ensure that everyone is involved, heard from, and prepared for changes to the company.
Reynolds and Associates Can Help With Succession Planning
Designing a comprehensive succession plan is essential for the continuation and future success of your small business.
Reynolds and Associates has supported many small businesses in the Houston area prepare for the future. Our expert team will help you evaluate each available option, follow succession planning best practices, and help formulate a succession plan that best aligns with the needs of your business and family.
Get started on succession planning with our CPA firm by calling 713-316-4560 or by contacting us online.
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