By Tom Sponsel, CPA/ABV, CFF
With COVID disruptions and distractions, and the start of a new business year, succession planning is probably not at the top of your priority list right now, but you should never lose sight of it. It’s important to plan for the perpetuation of the business both from an equity ownership standpoint as well as the transfer of the executive management of your enterprise.
For a successful transition, it’s best to plan five to ten years in advance, but it is never too late to start! You’ll want to have a clear vision for the future of your business. However, if you are passing the business onto a younger colleague or family member, you may need to collaborate and compromise in order to bridge the generational gap and decide upon a vision that suits both of your respective objectives.
Determining who is promising or capable now will ensure a smoother transition in the future. You’ll want someone who shares your leadership values and corporate culture, but who is also in touch with the times, connecting with the younger workforce and easily adapting to the latest market trends, use of technology, etc.
If the family member designated to take the helm is too inexperienced, you can have them shadow a more experienced manager during a prescribed period of transition. An alternative would be to keep ownership within the family but hand over management duties to a longtime, trusted leader within the company. This allows for the current family ownership to retain their stake while giving up day-to-day oversight of operations to a more experienced management team, at least for a period of time..
The current owners might want to divest themselves from the company and reap profits from their prior years of investment. They can accomplish this either by an outright sale to a third party, a management buyout, an Employee Stock Ownership Plan (ESOP) or other alternative, customized structures.
Whatever you wish to do, make sure you start planning sooner rather than later. Time passes quickly and you do not want an unexpected health crisis or other unexpected tragedy to greatly diminish the value of the enterprise you have built!