For Business Succession, Planning is Everything
September 13, 2019 | The state of manufacturing
It is often said time waits for no one. The timing of business succession can often be voluntary and measured. The unlucky or unwise, however, may experience a crash course in implementing succession without a plan. While the timing of succession is not always controllable, starting a succession plan does not need to be overly complex or exceedingly costly. A succession plan addresses two primary concerns across varied time horizons: management and economics. Practical protocols can be implemented to address these components.
Immediate operations: If a key person cannot perform customary duties, a written playbook to backfill these duties is paramount. The primary focus of this planning is operational continuity. Powers of attorney, insurance, employment agreements, managerial redundancy and corporate officer designations can be useful in this planning.
Long-term operations: A succession plan may allow business continuity, but create an unsustainable managerial or economic situation in the longer-term. The primary focus of this type of planning is equally divided between management and economics. Buy/Sell agreements, voting trusts, life insurance, deferred compensation, managerial redundancy, third-party investment or an orderly sale of the business are possible components of a succession plan.
Economics: No matter the time horizon, a succession plan should consider the economic impact to the stakeholders (employees, owners, suppliers, etc.). Ultimately, if the economics do not work for the business and its owners, the business succession plan is flawed. In this arena, buy/sell agreements, life insurance, non- owner management, deferred compensation, an orderly sale of the business, additional investors, ESOPs and corporate structure can assist with making succession economically feasible. Further, a will or trust can also allow cash to flow to the appropriate individuals while allowing others to manage the business.
As President Eisenhower indicated when faced with uncertainty, “Plans are worthless but planning is everything.”