FLORIDA SMALL BUSINESS DEVELOPMENT CENTER AT IRSC
ABSENCE OF A SUCCESSION PLAN COULD BE
COSTLY AND PUT COMPANY FUTURE IN JEOPARDY
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TCBusiness.com
Succession planning isn’t just for family
businesses and large corporations. Many
small business owners don’t plan for what
will happen to their companies during
a prolonged illness or after their deaths.
Unforeseen circumstances could put their
businesses at risk of shutting down.
I’ve seen it happen, unfortunately. The
young owner of a fashion business who
was killed in a traffic accident was the
face of the company. In time, that small
business did get back on its feet, but a
promising tech company did not when its
visionary founder died suddenly.
With small businesses, owners are often
too busy running the company to think
about deciding and then putting into writing
who will own and operate a business if
the owner dies. Without a succession plan,
family members and/or business partners
can end up fighting over the company in
court, draining the company’s finances.
Indeed, according to a recent study, 72%
of entrepreneurs have no succession plan
in place to handle leadership transitions.
What’s more, according to surveys by
Wilmington Trust, nearly 80% say they are
too busy managing their companies to
deal with making a plan.
Financial experts recommend that business
owners have a plan in place in case
of illness, disability or death, and an exit
strategy in place if they are planning to
retire.
“Our firm helps businesses address
foreseeable risks, but you can’t predict or
plan for every eventuality,” stated Michael
Minton, past president of Dean Mead law
firm. “Having a plan for what is foreseeable,
can prepare a business to handle
uncharted waters.
“And sometimes you do foresee the risk
and are well prepared. Who knew over a decade
ago when I was president of our firm
and adopted the first pandemic plan that it
would provide the foundation for our firm’s
ability to handle the current COVID-19
pandemic as seamlessly as we have?
“Business succession planning is very
similar, and you must address various
scenarios to make sure you’ve covered
the waterfront of possibilities. It can be
difficult for clients to visualize and plan for
what seem like unlikely events, and hopefully
you’ll never have to implement many
of them, but the overall need for the business
succession plan is as certain as death
and taxes and related to both. Someday
your business will need to implement it
and if you don’t have a plan, then you have
given no direction as what the outcome
may be.”
Planning now for these scenarios is critical
for small businesses because it will help
avoid a power vacuum, which could lead
to power struggles and court fights, and
it helps maintain business continuity for
your employees, partners and customers.
In the 2019 STEP Global Family Business
Survey that questioned more than
1,800 family businesses, 70% of global
family businesses report they do not have
a formal succession plan. In many cases,
there are millennial family members who
are highly educated and already leaders
in their firms and ready to take over,
researchers said. The report also found
that fewer than half — 47% — have a succession
plan in case of unexpected events
such as death.
Here are some strategies to begin your
succession planning, at least for the case
of an unexpected illness, disability or
death:
Cross-train your employees. Too often,
much of a small business owner’s knowledge
remains in his or her head and isn’t
shared, and in the case of an unforeseen
loss or departure this could be devastating
to the business left behind. And even if
you don’t think you’ll need a replacement
in the near future, prepping someone
to assume an important role creates an
invaluable safety net. Offer mentoring
opportunities, job shadowing and training.
Open up the lines of communication
throughout your small business — your
employees will feel more vested in the
company’s success.
Do a trial run of your succession plan. A
vacation is a great time to have a potential
successor step in to assume some responsibilities.
The employee will gain experience
while you learn how prepared the
person is to take on a bigger role.
Succession plans should be in writing
and should be consistent with your estate
plan — with the help of accountants and
attorneys. That will reduce the chances of
a court fight, which could hurt the company’s
finances and diminish the value of
the company. The plan should also include
a reasonable process for the valuation of
the business. If you designate a trusted
family member with a durable power of
attorney under your estate planning documents,
make sure they know your intentions
under the business succession plan
so they don’t take steps that are contrary
to your intent.
Involve your partners in your planning.
When there are co-founders or partners
in a business, they should have a written
agreement drafted by an attorney that
spells out what happens to the business
when one of them dies. v
BY NANCY DAHLBERG
Spike Schultheis held sales and marketing
management positions for over 40 years,
overseeing a wide range of business environments
including technology, consulting
and venture development. His work
focused on business to business segments,
energy and telecommunications utilities
and federal, state, and local government
sectors. Schultheis developed forecasting
applications and complex business
financial models to support new technology
venture financing and development
initiatives. He earned a bachelor’s degree
at Princeton University in Economics and
Sociology and received his MBA from the
Wharton School of Business.
/TCBusiness.com