Business succession planning
Only 30% of family-owned small businesses successfully transition to the second generation. Only 12% successfully transfer to the third. Only one in four businesses have a business succession plan.
Coincidence?
If you’ve built a business, you know how critical controlling the controllable is. Planning is an essential component of building and maintaining a business; you need to pay just as much attention to ensuring your business transitions smoothly to the next generation of leadership. We know you haven’t worked this hard building your business just to let it die when you decide to step away from it.
Succession planning is a complex and multidisciplinary process. It’s easy for successful business owners to look at their company’s high profits and sterling reputation and simply assume that transitioning to the next generation of leaders will be a straightforward matter. Odds are, without a plan, there will not be a managed transition to a successor leadership team, whether it be family or a third party, and an unprepared new management group or a poorly managed transition can cause a significant loss in value.
Building your business to leave a legacy involves more than profits and reputation: it involves creating a long-term program to identify and groom future leaders and/or prepare for a managed transition to your family or third party purchaser. The good news is that establishing a well-documented and tailored succession plan always helps clarify the present needs of your business as it’s impossible to plan for the future without fundamentally understanding the present. The process of succession planning is directly aligned with business planning – at its core, succession planning seeks to determine where the value in the business lies and how to preserve, incubate, and grow the systems, products, customers, and personnel that create that value.
McGrannLAW is situated at the intersection of business law and estate planning, perfectly positioned to advise on long-term business planning and the necessary estate planning components of transitioning your business. We partner with small businesses to devise strategic plans that provide an orderly transition of management and ownership.
“I came to Owen and his firm looking for mercenary legal services and found a business partner instead.”
There are three basic types of transitions available when exiting your business:
- Business Succession Plans. If you seek to transfer your ownership interest to a hand-picked successor (or successors) – whether a family member or otherwise – then you will want to think about establishing a business succession plan. The earlier you can get started on this plan, the more flexibility you will have in determining the pacing and mechanisms of the transition, the preparation of your successor, and the transfer of business good will.
- Transaction. Selling your business to a third party is an exit strategy that can maximize the profit you make when exiting your business. Successfully selling your business likewise takes a specific type of planning that accomplishes three goals: 1) maximizing the productivity and value of your business in a way that does not require you to operate, 2) making the transition to new ownership frictionless; and 3) allows you to grow and invest in the company before you sell to a third party.
- Closing the Business. For some business owners, winding down the business is the most sensible option. If you do not have a successor in the wings, partners willing to purchase your ownership interests, or a third party purchaser ready to buy, shutting down the business and liquidating assets may be your best option.