For a small and medium-size business, the major concern always is to maintain positive cash flows and have a decent bottom line. Sustainability is at the top of the mind of the business owner, and it is sometimes so predominant that it gives a blinkered outlook. Thinking about and formulating a business succession plan seems to be the last agenda on the list, which in hindsight proves to be a fallacy.
Any business owner on the cusp of embracing retirement should take time out to devise a plan for the smooth transition of the business baton. There is always the option of selling the business with its assets, for the lack of a successor or a succession plan. But, if a succession plan is in place, the need to sell might not arise.
Picking Out the Successor, And A Right One for That Matter.
The pick can be made from a family member involved in the business already or ready to be a part of it, or from amongst the business associates. In case of the business having several partners, ones who are not in favour of a successor may sell their business share to the other partners, through a well-drafted buy-sell agreement. At all stages, it is advisable for the business owner to employ the services of a legal and professional expert. Along with drafting the legal documents, the experts can also help the business owner in vetting the skill set of the prospective successors. Once the successor has been finalised, the business owner should take steps to create a nest for him.
Money Back Insurance Plan for Business Owners.
One of the ways to prepare the grounds for the business successor is by going in for money back plans to have an added savings feature. Money back plans entail that in the event of the death of the policyholder, his business partners can purchase his share of the business easily. The business partner needs to sign an agreement with the insurance company, and the pay-out of selling the policyholder’s shares will be transferred to his or her dependents. The share of the deceased partner in the business will be divided or transferred to the other remaining partners. Going for money back plans gives a double benefit to the policyholder. It guarantees the insured party of receiving a sum of money every few years, called the survival benefits.
Drafting a succession plan for a business involves handing over the reins of the business along with the saddle. Full access to business books, involvement in key roles even before the succession plan is put into action is paramount. The team needs to be familiarised with the working ways of the successor so that the transition happens smoothly and without any grievances from either side.
Get the Affairs in Order.
Taxation and estate issues need to be handled beforehand, the stakeholders need to be made aware of the succession plan, and clear guidelines for taking the business forward, need to be established in case the successors chosen are more than one. The owner should take the successor(s) under his or her wings to groom them well for handling the business in a way that meets the goals set for the business, as well as, for the stakeholders of the business.
Why the Need for A Business Succession Plan?
- It ensures timely settlement in case of the retirement or death of the business owner
- Eliminates the possibility of an external and hostile takeover
- The partner’s share of business is valued beforehand, thereby making the need for valuation at the time of retirement/ death not necessary
Picking up a business succession is an important decision which you need to take only once you are satisfied with the credibility the successor holds. Seek guidance from business planning experts before you come to final thought.