What is a Business Succession Plan (And Do I Need One)?
Each week clients ask questions regarding a variety of legal issues. Some questions require a significant amount of time to research, analyze and respond to; others require less time, and based on my extensive years of experience can be answered in a format such as this blog. In the Ask Attorney Monica section of the Blog I answer many of these questions in simple terms, to provide readers with insight and direction. I would like to make perfectly clear, however, that these responses are generic in nature and may not apply to your circumstances. This Blog is designed for general information only, nothing in it should be construed as formal legal advice, or the formation of a lawyer/client relationship, or provide any guarantee, warranty, or prediction about future results. You should always contact an attorney for any legal issue that arises, even those that seem simple to you. An attorney can advise you on the simplicity or complexity of an issue, and help you decide whether you require professional services or can handle it yourself. With that caveat in mind, lets #AskAttyMo:
There are two types of plans that every business ought to have: a Business Plan that details how the owner expects the business to grow in 3, 5, and 10 years, and a Succession Plan that details how the business will select and groom employees to grow within the business. Whereas the Business Plan includes items such as budget, marketing strategy, infrastructure, hiring, and revenue projections, the Succession Plan focuses on growing the organization so that it can handle growth as seamlessly and as smoothly as possible.
A Succession Plan is in place for what happens as a business grows. It is a plan that includes how to select employees for advancement. It allows the owner or business leader to identify strong internal candidates for advancement. Businesses need Succession Plans when new business opportunities present themselves and additional leadership is required. Businesses also need Succession Plans when key employees are promoted or when they are no longer with the company. The most crucial need for a Succession Plan comes when a business owner retires or passes away, and the owner’s intent is that the business will survive his or her retirement or passing.
Leaving key positions open within an organization due to promotion, retirement, or death can devastate an organization. Without the proper leadership in place, work may be delayed, critical decisions may not be made, and clients’ or customers’ needs may go unmet.
Strong Succession Plans are vital to the sustainability of the business. In the case of family businesses, the plan should include regular family meetings to discuss the founder’s vision for the business; which members wish to join the business; what their starting point in the business will be (including work hours, salary, and benefits); what the growth path will be; and how promotion will be determined. Succession Planning is a strategy that enables a business to continue to operate smoothly and effectively as it is passed to future generations of leaders. And, in the case of family-owned businesses whose leadership is being transferred to a non-family member, a Succession Plan can spell out whether the family members may get bought out, or if they will remain silent but inactive partners.
To determine if your business requires a Succession Plan, there are a few fundamental questions that owners need to answer. First, is this business viable in the next generation? Without the personality and business contacts of the founder, could the business survive? Is the business tied irrevocably to the family name? Should the business be sold to a qualified buyer? Are there family members who are qualified (and who want to) join the business? Does the next generation of family member share the founders’ vision?
If you have not considered what leadership potential already exists in your company (or have not identified that you need it and don’t have it), you should consider creating a Succession Plan. Without it, you may be endangering the future success of your business. Employees want to know how they can advance within the company, and family members want to know if there is a seat for them at the table.
An ideal time to create a Succession Plan is when you are creating your Estate Plan. For business owners, the two go hand-in-hand as your business is likely a substantial asset and your Will determines how your assets are to be handled. To navigate these complex issues, it is important to discuss a Succession Plan (and business valuation) with a qualified professional. Contact Teasley Law Group for your Estate and Succession Planning needs or an attorney in your state.
I am Monica A. Teasley, Owner/Principal Attorney of Teasley Law Group, LLC, (TLG) a boutique corporate law firm located in Stone Mountain, Georgia. We specialize in concierge services for our corporate clients. TLG will service all needs generated by our corporate clients. With significant experience in transactional endeavors, TLG represents both start-ups, established companies and nonprofit organizations. We offer clients the benefits of Experienced|Effective|Efficient Representation in their business affairs. Please feel free to contact us at (404) 377-5512. Visit our website www.teasleylawgroup.com. Check out my column in Trendsetters to Trendsetters Magazine https://issuu.com/trendtotrendmag/docs/march_april___2016_new/c/sp6oopj I have a B.A. from Brandeis University and a law degree from Suffolk University. I am licensed in both the States of Massachusetts 1998 (I just celebrated my 20 year anniversary) and Georgia 2003.