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Understanding Business Succession Planning
Ensuring that you have a strong estate plan set up for your personal property and assets can make things smoother and less stressful for your beneficiaries and provide you with peace of mind as you live out the rest of your years. But if you’re a business owner, you also need to make a plan for what you want to happen with your company should something happen to you unexpectedly. Keep reading to learn more about what business succession planning is, why it’s important, and how to create a solid succession plan.
Why Business Succession Planning Is Important
You’ve worked hard to build your business and make it a success, so it’s important to plan for the future when you may not be here to oversee every aspect and make every decision. Business succession planning involves making provisions for the transfer of ownership if you were to pass unexpectedly as well as creating processes that ensure that your business can function well without you.
The main objective of business succession planning is to ensure that your business, including the employees and customers who depend on it, faces as little disruption as possible if something were to happen to you. Larger companies are often more inherently set up for this because they may have more stakeholders and more leadership staff who are able to take over and keep things running, but small businesses can face immediate issues without a proper succession plan in place.
The Benefits of Effective Succession Planning
When done properly, a business succession plan can provide many benefits for you personally and your business’s overall health. A business succession plan lets you rest easy knowing your business is in good hands. It’s also good for your business because it means you’ve ensured that your business isn’t dependent on any one person.
You may have heard people in your industry refer to “hit by a bus syndrome,” which means that if any one person at your company was hit by a bus, the business would not be able to continue or would experience extreme hardship temporarily. For example, if only one person at your company knows how to run payroll and they get “hit by a bus” — which can also mean that they quit or are too ill to come into work — payroll can’t go out, which is extremely problematic. Effective succession planning ensures that your business continues to run smoothly no matter what happens.
Business Succession Laws and Regulations in New York
When you’re creating a business succession plan, it’s important to be aware of the various laws and regulations that govern these types of issues, specifically in regards to transfer of ownership. For example, there are specific rules for how much stock can be gifted to someone on an annual basis. Gifting stock is one way to transfer ownership, but if you don’t consult with an attorney, you could find yourself paying hefty taxes.
Another option is to set up transfer of ownership in the business through a trust, but these also have specific guidelines. An attorney can help you understand what type of trust is the best one for your situation and ensure that everything is done correctly to facilitate a seamless transition when it’s time.
The best way to ensure that your business succession plan is in accordance with New York’s rules and regulations is to develop it with the help of a qualified attorney.
Creating a Succession Plan
If you’ve never created a succession plan before and aren’t sure where to start, the team at Davidov Law Group can help. We can guide you through the following steps to ensure that your succession plan is appropriate for your business and has covered every possible contingency.
Assessing the business. The first step is to take stock of your business, including making a list of employees and their roles, customers and clients, vendors, and your profit and loss history.
Identifying potential successors. Once you know what you have to pass on, you’ll need to start identifying candidates to take over the business. You may want to consider both overall ownership here as well as identify employees who could step up into more responsibility if needed.
Plan how to get current employees and potential successors up to speed. If your successor hasn’t worked in the business before, it’s a good idea to get them familiar with what your company does and how it works long before ownership actually transfers. This step is also where you would start crosstraining or promoting the employees identified in the previous step.
Create the business plan. Meet with an attorney to solidify your succession plan and make it official.
Identifying Potential Pitfalls in Succession Planning
One of the main parts of creating a successful succession plan is to take an inventory of the pain points of your business operations. Ask yourself questions like:
What employees would I be lost without?
Is there anything that only one person can do?
Which of my lower-level employees are showing potential for leadership positions?
Who would I trust with my business?
Asking and answering these questions can help you get a better understanding of where you need to do some extra work to ensure that things can run smoothly if something happens. For example, if you have one key employee that seems to keep the place running, it’s a good idea to focus on cross-training others to start spreading out some of those tasks and ensuring you’re not relying too heavily on any one person.
Whether your business is just starting or you have years of profitable dealings, creating a business succession plan should be part of your larger estate planning. Get help ensuring your company’s future is secure when you work with the legal team at Davidov Law Group. Call our office today at 516-928-6594 to get started.
