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Editor’s note: This is a guest article by Sandra Roberts
CHOOSING a successor is never easy. It takes a lot of time and planning to figure out who is going to take your business to the next level, and carry it through with the same passion and dedication that brought it to where it is today. Proper succession planning is a critical aspect to ensuring a smooth transition. . By following the given guidelines, it may become easier to choose your next business successor.
Here are three succession planning best practices to keep in mind.
Family, Not Always First
Though it’s reasonable to want to keep a family business, within the family, a family member should only be chosen if they are qualified and can truly handle the responsibility. A family candidate should have a similar vision to yours and demonstrate the right spirit that will move the company forward. The reality is, there are times when family members may seem ready for action, but then realize they can’t take the heat and decide to cash out and hand over the business to someone else.
Tip: Be objective and think about the strengths of each person that is being considered.
Be A Mentor
A very important aspect of succession planning is mentoring your successor early on. It’s vital you prepare your leader(s) of tomorrow and avoid (like the plague) waiting until the last minute to choose a successor. People are bound to mess up if you hand everything over to them without any hands-on practice first.
Tip: By letting the successor take the reigns gradually, they will be able to get a handle on company strategies, see what kind of everyday issues they are likely to encounter and how your company deals with tasks on a day-to-day basis. Who knows? Your successor may even develop some new approaches you may not have thought of.
The Agreement
After a successor has been chosen, the next thing that needs to be considered is how the transfer will be done. The two most common methods are entity-purchase agreements and cross-purchase agreements. Entity-purchase agreements have the business purchase a policy for each member, who then becomes beneficiary and policyholder. With this type of succession plan, (which is paid for by the company) the owners can circumvent any out-of-pocket expenses while also looking after their families in the event of death. Cross-purchase agreements mean each owner of the corporation purchases an insurance policy on the other shareholders. This can be trickier since they have each partner act as a partner and beneficiary.
Tip: There are positives to both methods, so be sure to research them to see which one is best for the business.
In the end, people want to see their business grow and expand. There are far too many instances where a company falls apart after the business owner passes away. Prevent this from happening by choosing the right successor so that the business continues to expand and grow in the future.
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