How to Create a Framework for Succession Planning

In this second article of our succession planning series, we'll delve into one of the most critical tasks for business owners: establishing a framework for effective succession. Our first publication introduced the importance of having a solid plan in place, covering essential aspects such as taxation, future preparedness, and maintaining control of your business even in your absence. Continue reading to gain valuable insights and tips on developing a robust succession strategy.

Where Do You Begin?

So, how can you devise a succession planning template to facilitate a smooth transition when you exit your business due to retirement, death, or disability? Here's what you should know:

Define Your Goals and Objectives

What is your game plan for the next five to ten years? What trajectory would you like your venture to take in the future? What current and future roles are needed to get there? Do you want to sell the business? Transfer your ownership to potential successors? Or would you like to retain some form of control over the business even at retirement?

Every business is unique, and the initial queries needed to drive your succession plan to ensure business continuity vary. As such, the first step to creating an effective succession planning strategy is defining your goals and objectives because the robustness of a succession plan depends on its capacity to fulfill your business and personal aspirations.

Identify Key Positions

Once you have laid out your goals and objectives, the next step is to identify the key roles essential to achieving these aspirations. For example, through a thoughtful succession planning process, you may have contended that your business needs to grow and venture into a new market in the next ten years. By that point, you'll have long retired. To achieve this goal, you must identify key positions from existing or future talent.

Some key roles may only be important for short-term business goals. However, others may be a priority in the long term as they facilitate business growth and expansion. Therefore, you should identify the key functions in your succession plan according to their importance and impact on current and future business operations.

Pick Your Potential Succession Candidates

Now that you've mapped out the critical positions for helping your business achieve its goals, it's time to identify the succession plan candidates. These are the individuals who will take the helm and steer the ship in your desired direction. The options here are numerous—you may choose to transfer ownership to family members, internal candidates, or sell your business to a third party.

Whether your retirement planning strategy involves maintaining partial ownership while stepping back from daily operations or you intend to pass the mantle to future successors, it's important to pick your future successors early enough. Keep reading to find out why.

Talent Management

Up next is addressing the skill gaps your potential successors need to fill to move from their current roles to future leadership positions. These future leaders may require substantial upskilling to take on their future management roles.

Remember, the earlier you start managing potential talent, the better. It gives you enough wiggle room to nurture future leaders and bring them to the level required to ensure business continuity and success.

Consider Legal and Financial Implications

As you may have inferred in our last article, the business succession planning process is subject to various legal and financial considerations. One of the most significant ones is the tax liability associated with different methods of transferring ownership. The type of business you own and manage will also affect the legal and financial implications of transferring ownership.

It's important to work with professional advisors for counsel on building a comprehensive business succession plan that is tax-efficient and maximizes the business value.

Test and Review

A comprehensive succession planning strategy is not set in stone. It is the result of continuous iteration involving regular feedback as a result of an ever-changing business environment.

Conclusion

That's a wrap for the second article in our business succession planning series. We hope you've gained insights into the factors to keep in mind when designing your succession planning framework. For the next article, we'll be talking about integrating estate planning and business succession planning. You're invited to join us as we dive deeper into the world of succession planning for business owners.

Are you wondering about any of the issues mentioned above? Please email us at info@wilkinsonlawllc.com or call (732) 410-7595 for assistance.

At Wilkinson Law, we give business owners the clarity they need to fund, grow, protect, and sell their businesses. We are trustworthy business advisors keeping your business on TRACK: Trustworthy. Reliable. Available. Caring. Knowledgeable.®