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Yes, every entrepreneur should have a business succession plan

On Behalf of | Apr 25, 2023 | Business Law |

With the hit HBO show “Succession” in its final season, we hope business owners have learned that it’s in everyone’s best interest to put a succession plan in place right away.

It’s true. From startups to well-established businesses, every company needs to have a succession plan in place. It’s just good sense. Something could happen to you tomorrow that could derail all your best plans. Without a business succession plan, your company is vulnerable.

According to one recent survey, some 30% of business owners haven’t set up their plan. The 70% of business owners who do have succession plans are at a competitive advantage because their companies will be stable should something happen to the founder.

They have an advantage among business buyers, too. Without a business succession plan, your company could be relying entirely on you to succeed. That isn’t a business model geared to attract buyers.

A business succession plan is also advantageous because it can include mechanisms to minimize taxation as your business passes to a buyer or the next generation.

The reality is that every business owner will exit the business someday. Do it on your terms.

Three steps for small business owners to build a succession plan

The first step in business succession planning is to have a frank, serious conversation with yourself, your senior management and your family. What are your goals for the business once you retire? Who is interested in taking over? Should you sell the business as a going concern? Decide what you would like to have happen upon your exit. Make sure everyone is on board with your plan.

Next, be sure your company’s foundational documents are in order. Did you set up as a sole proprietorship by default? Did you use a document kit to set up your LLC? Have a lawyer look over your operating agreement, articles of incorporation or partnership agreement and make sure you’re actually operating in accordance with those documents.

Finally, sit down with your lawyer to go over all the potential issues your plan needs to address. This conversation will allow your lawyer to set up a clear, effective transition plan for you and your top management.

If someone is relying on you, you need a succession plan

Don’t be among the 30% who risk chaos if they need to step away for an extended period. Give your top people the authority they need in order to run the company in your absence. Give yourself and your successors peace of mind and certainty.

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