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Succession Planning for Small Businesses

Author: Jeff Middleton

Just as it is important for an individual to create a will in order to distribute their assets as they wish, owners of small businesses should create a plan to ensure the continuity of their enterprise when they transition out of the ownership role. Ideally, the changeover in ownership should be seamless for your clients, vendors, and employees. Small businesses, in particular, are susceptible to failure after the departure of a long time leader, but with a well-developed plan, you can increase the chances that your organization will continue to succeed long after you have handed over the reins.

There are many things to consider prior to implementing a succession plan. You should begin by:

  • Understanding all the roles that you fill in your organization;
  • Identifying the right person(s) to take on those roles upon your departure;
  • Communicating with those parties to determine their willingness, and ability, to take on your responsibilities; and
  • Developing their skills ahead of time, so that they are well equipped to be successful in your absence.

Regardless of your business type and the method of succession plan you eventually choose, communicating the extent of your duties and your expectations to your successor is vital to the continued success of your organization. In addition, it’s important that all affected stakeholders are made aware, when it is appropriate, that a change in leadership is coming. Vendors, banks and creditors should be informed that the successor has, or will have, the authority to transact business for your firm when the time comes. Customers should be alerted to the change, in the event they are accustomed to dealing with you directly. You should assure your employees that you feel the firm will be in capable hands and that they can continue their work without much adjustment.

The complexity of a succession plan will vary depending on the size and structure of your business. A consultation with the experienced business attorneys at Kearney, McWilliams & Davis, PLLC will help you to develop the best plan for your particular situation. For example, a sole proprietor might determine the best option is to devise his or her interest through a will, or simply sell their business to a successor of their choice. Similarly, individuals that own a stake (whether a majority or minority interest) in a partnership or limited liability corporation (LLC) may utilize an contractual agreement to transfer their ownership, or possibly convey their assets and interests into a trust in order to facilitate an efficient transfer of ownership to the next generation of leadership. Identifying the option that is the best fit for you, your small business, and your successor will help to achieve your goals for a harmonious transfer to the next phase.

Whether you intend to pass on your business soon, or many years from now, you and your organization will benefit now by examining all your options and determining the best options for a smooth change in leadership, and the continued operation and success of your enterprise.

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