Succession Planning Myths That You Should Ignore
By: Barry E. Haimo, Esq.
May 27, 2021
As a small business owner, you’ve likely put your heart and soul into developing and maintaining your small business. Your business is probably your most valuable asset, and its continued success is vital to your family, even after you retire.
So why do so few owners know who will succeed them, and what will happen to the business should they die or become incapacitated?
All of this is laid out in the business succession plan. Unfortunately, this important step is something that is often overlooked by small business owners, and seen as something that can be done tomorrow, next year, or even next decade.
Why? Because there are a number of succession planning myths out there that convince business owners they can wait. In this post, we’re going to cover several of them.
Succession Planning Is About Retirement, and I’m Not Retiring Anytime Soon
Succession planning is about more than what happens should you retire or pass away. In fact, a succession plan should be an active part of every small business as soon as possible.
Why? Because a succession plan isn’t just about who takes over after you’re gone — it’s also about developing a strategy for the business to operate and grow beyond you even when you are still an active part of the business.
A good succession plan should include the following elements:
- Development of a timeline for the business’s growth and involvement of new owners, including your successors
- Identification of key successors
- Role development of successors, ideally before you retire
- How to finance the transition to successors
Succession Planning Can Wait Until I’m ready to Retire
As succession planning myths go, this is a big one. Contrary to popular belief, succession planning is not a singular event, but rather a gradual process that enables a smooth transition from one generation to the next, allowing the business to outlive its founder(s).
Finding the right successor and developing their role to put them in a position to succeed in operating the business can often take many years. Ideally, this process should be complete before you are ready to retire, allowing for a seamless transition.
Additionally, a contingency plan is also important. This specifies what is to happen in the event of your premature demise or incapacity. Naming the next generation of ownership and providing some plan for how they are to conduct the business can prepare you for this unlikely eventuality.
The Next Generation of Ownership Is Not Ready
Ask yourself: when you started your business, were you ready for the challenges you encountered? Probably not. But you learned and adapted to face them.
Your successor does not have to be ready to run your business yet. So long as this person has the core skills you deem necessary, a strong work ethic, and is willing to learn, you can work with them to develop the necessary skills over time — and under your supervision.
Giving Up Ownership Means Giving Up Control and Income
Succession planning is often viewed from a black and white perspective — either you own the business or you sell it.
While these are options, succession planning can, and probably should, happen much more gradually in order to ensure that the business continues to run successfully when you are ready to retire.
The option of shifting equity over time allows you to maintain control until your successor has demonstrated their competence.
Are you a small business owner? Contact us to learn more about succession planning and how to ensure the continued success of your business even as it’s passed to the next generation.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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