As a lawyer for small business owners, I am constantly inspired by grit, worth ethic, and what seems like boundless amount of creativity they exhibit. By others, entrepreneurs are typically considered those “weird” people who are willing to build a business brick by brick…yet at the same time, the vast majority of those same business owners either fail, or fail to consider what would happen if they can’t be there to man the helm of the ship they’ve built.
Succession planning for businesses not only is one of the most important aspects of owning a business; but also take much, much longer than most of my clients expect. On average, it takes anywhere from twice to more than five times longer to execute than they expect.
According to Nationwide’s survey, here are the leading reasons why on average 60% of business owners neglect succession planning:
47% | Don’t believe it is necessary
14% | Don’t want to give up one’s life work
11% | Don’t know when to create a plan
11% | Don’t know who to work with on succession planning
11% | Don’t have time to develop a plan
8% | Overwhelmed with government regulations
“Business owners function at such a rapid pace to remain competitive, it’s no wonder that developing their exit plan and replacement doesn’t seem like today’s priority,” said Walker, “Yet, there isn’t a more critical component of an operational plan than a solid business succession plan for providing seamless continuity in a time of crisis or transition.” (Information and statistics provided by SmallBusiness.com).
One of my clients has a multi-general family business; and by multi-generational, I mean his business employs not just himself and his wife, but his children, and grandchildren’s family’s are all employed by this business. One day, when myself and the accountant working on the restructuring were so close to wrapping it up, I got a phone call that my client was on his way to the emergency room due to a stroke.
In that moment, the accountant and I had to snap immediately into professional mode: no documents had been signed yet, and on the spot; literally as we were driving to the ER, we had to concoct an emergency plan.
While this client admittedly began his succession planning years too late, the accountant and I had begun working on this company’s succession plan 18 months before the incident occurred. 18 months may seem like a long time to work on a project, but it goes to show that you can never start your planning too early.
If you have a business, at all, much less if you have a business, are married, or have children, you must have a succession plan in place.
Luckily, the story ended well for my client: he pulled through the stroke. However, if the story had no ended so happily, his children would have been left with a wrongly-worded and constructed trust that would have created nothing but strife in executing; probate at worst. And unfortunately, this scenario is far from rare.
If you own a business, you need to start with considering these seven factors (all of which will be discussed in greater detail at a later date).
I’ll be explaining more in a follow up post, but for now, would love to hear your thoughts about the subject. Is business succession and legacy planning something you have considered for your business? If so, have you reached out to an attorney about the matter? I’d love to hear your thoughts!