Succession planning for your small business can feel a bit counter-intuitive– especially if your business is only a few years old. When you’ve invested so much blood, sweat and tears into building up your company, it can be hard to think of what will happen if and when you need to step down.
Though you may not be planning to leave your company any time soon, life can throw you a curve ball. Should that happen, the ensuing confusion over who will take over your business and the disruption in day-to-day operations can undo everything you’ve worked to build up.
This is where succession planning comes in. You have the ability to put a plan in place now to help ensure that there will be a smooth transfer of ownership to another individual or party in the future.
The first step in the process of developing a succession plan is to decide who will take over the reins of your business when you leave. Below are four common options of ownership transfer to choose from:
- Sell it to your business partner. If you co-own your business with another person, then selling your portion of the company to your business partner is a logical choice. You may already have a plan in place as part of your business partnership agreement that defines what happens in the event that one partner becomes ill or dies. You may, however, want to expand on that with a formal buy-sell agreement.
- Hand over the business to a family member. If there are members of your family currently working in the company, then you may want to pass the business to one of them. Where there are multiple family members who would like to take over the company, you need to clearly convey who the business will transfer to. You may also need to spell out if or how the others in your family will be reimbursed.
- Sell the business to a key employee. If you don’t have a business partner and no family member is working with you, then you can sell the company to a key employee. You ideally want someone who has worked at the company for a while and is familiar with the day-to-day operations. In this case, the buy-sell agreement would specify the circumstances or date in which a transfer of ownership would happen.
- Sell to an outside third party. If there are no obvious individuals to pass the torch to, then you may want to sell your company to a third party. This would include an entrepreneur looking for a pre-owned business opportunity or another company looking to expand its expertise or market.
The goal of succession planning is to help ensure that your business has the right leaders in place so it can continue to operate and grow even when you are not there. Deciding who will fill your shoes is an important first step in that direction.