Succession planning is an important part of operating a successful business, especially for small business owners who are heavily involved in the day-to-day operations of their company. Yet, many small businesses in North Carolina lack a comprehensive succession plan. A study cited by the financial news site The Motley Fool found that 58% of companies do not have a plan in place.
One of the reasons why business owners and business managers fail to create a comprehensive succession plan is that they do not know where to start. While every plan is different, there are some overriding principles that should be followed in succession planning. Here, our Charlotte estate planning lawyers highlight four broad qualities of a successful business succession plan.
Four Key Principles of an Effective Business Succession Plan 1. FormalInformal succession plans are simply not very reliable. In too many cases, small businesses owners rely on “word of mouth” succession planning strategies. There are a number of different things that can go wrong with an informal succession plan. It is not uncommon for people to end up with different visions for the future of the company in their head. Everyone might not be on the same page. A formalized business succession plan is far more reliable. To be clear, a formalized business succession plan does not necessarily have to be a complicated business succession plan. An experienced North Carolina business law attorney can help you craft a formal strategy that works well for the specific needs of your company.
2. SystematicA business succession plan should be systematic. Broadly speaking, this means that there should be a coherent vision for the future across the company. The right systems need to be put in place to ensure a smooth and effective transition. As an example, imagine that you own and operate a family business in Mecklenburg County, North Carolina. The plan is for one of your children to take control of the company when you retire. It is not enough to simply write that statement down. You need to create the proper systems, so that your child—the future leader of the business—has all of the tools and resources that he or she needs to succeed.
3. TailoredWhile well-crafted business succession plans share many important commonalities, each plan is unique. Ultimately, a business succession plan should always be narrowly tailored to meet the specific needs of the company. An overly generic business succession plan is unlikely to work well for your company. Every business succession plan should be customized to address the specific issues that an individual business has to deal with on a day-to-day basis.
As you and your partners are crafting a business succession plan, it is a good time to review how your company operates. Ask the question: What are the most important things to ensure continued success in the future? Make sure you know the things that matter most to your company and that you address those issues in putting together a business succession plan. An attorney with experience crafting customized business succession plans can help.
4. PracticalFinally, a business succession plan must be practical. It should be based on real-world experience in the business. Further, it should be constructed with full view of the position and limitations of the business. On the issue of practicality, one of the biggest challenges is making sure that there is adequate funding for any transition plan.
As an example, imagine that you own a company with two other individuals. If one person suddenly passed away, would you and your business partner be in a position to purchase their shares? Do you know what would happen to their stake in the company?
These are questions that should be asked and answered when crafting a business succession plan. The plan needs to be practical. When it comes time to carry the plan forward, it is crucial that you and your business partners have all of the resources (and financing) that you need to move forward.
Contact Our Charlotte, NC Business Succession Attorney TodayAt Arnold & Smith, PLLC, our North Carolina estate planning lawyers have extensive experience with business succession planning. We help business owners and entrepreneurs find the best solutions for their company. Contact us now for a confidential case evaluation. From our offices in Charlotte, Monroe, and Mooresville, we provide business succession planning services throughout the surrounding area, including in Mecklenburg County, Union County, Anson County, Cabarrus County, Montgomery County, Stanly County, and Rowan County.