SUCCESSION PLANNING FOR YOUR TEXAS BUSINESS
Most Texas business owners and start-ups don’t think about a developing a business succession plan and strategy when they are choosing an entity and organizing the company. If you have invested time and money in starting your business, assuming you will live forever to operate your business is not a responsible business succession plan. It’s a plan doomed to fail. And with it, the business you’ve worked so hard to build.
As with your customized business contracts and management documents, there is no cookie-cutter business succession plan that works for every business. Every business is different and needs a custom plan that takes into account your goals for the business.
You need to written plan and agreement, and it’s a lot easier to do this before the crisis occurs. You want to make sure your wishes are clear and will be carried out. An important part of a business launch is to plan for the future to answer tough questions such as:
- What will happen to you business if you should die early?
- How you would like your business managed in the event that you should step down or leave?
- Who will run the business if you are no longer able to?
WHAT HAPPENS IF YOU DON’T HAVE A SUCCESSION PLAN?
Failure to establish a succession plan can cause a range of issues. Some are reasonably simple to resolve, but some could be complex and could ultimately sink your business. Failure to plan for succession may lead to:
- The person you had in mind is unavailable or unwilling to assist;
- You can’t find a qualified, viable successor fast enough;
- Your successor is unprepared or untrained;
- Your company management or board objects to your successor;
- Your company sales fall, revenue and assets diminish, and your company becomes a liability;
- You can’t move quickly enough on a potential sale opportunity and you miss it or worse yet buyers know of your situation and use this to underbid
TWO PLANS ARE NECESSARY
You need at least two plans in place. First, an emergency plan for the short term for your business in the event something happens to you suddenly and unexpectedly, be it health issues, incapacity, or otherwise. You want to be able to return to the same business you built, regardless of the length of time away, and to ensure its continued success in your absence. Second, a long term exit plan from the business which can be by retirement, sale, or transition to other ownership including family, friends, investors, or loyal longtime employees. This ensures the business goes on. In either case, the goal is to plan so the business survives and is preserved and is not entirely owner-dependent.
The emergency short term plan needs to be in writing and designate specifically who will step in and manage the business in the owner’s stead. The plan can also provide for temporary assignment of duties in different people, so the responsibility does not fall on just one person. Also, the plan can address situations in an “if-then” manner which can include retaining additional help in the form of independent contractors or employees who can fill in gaps left by the owner until an eventual return to the business. The possibilities are endless, but it requires planning and brainstorming among all the people that would be involved in the plan.
In the long term, you need to plan for your retirement or exit from the business. You can plan to pass on your shares when you retire to your family and a successor you select and groom to take over. If you are planning for what occurs upon your death, you can use traditional estate planning devices such as a will or trust to leave the business to family, friends, or employees. You could also have a buy-sell agreement in place to ensure that when something happens the remaining owners are able to purchase your shares of the business payable to your family or that your shares can pass outright to your heirs.
It’s important to test out various scenarios to prepare a thorough, viable succession plan. Give Tim a call to discuss your transition strategy and put a sound plan in place to protect your company’s future.