Have You Forgotten This Critical Part of Business Planning? Most Small Business Owners Have!
How to Make Sure Your Family Isn’t Left in the Dark When You're No Longer There
Cliffnotes for those in a hurry… (Skip this for the full story.)
Succession Planning Summary
Succession planning is an essential part of ensuring your business’s longevity and protecting your family from unexpected stress. It’s about preparing your company for a future where you may no longer be at the helm, ensuring continuity, stability, and a smooth transition. Here are the key steps:
Identify Your Successor
Document Critical Knowledge
Legal and Financial Structures
Train Your Successor
Set Exit Goals
Have You Ever Thought About How Things End?
Have you ever thought about the end game for your business? Have you ever done succession planning for your business? It's something a lot of small businesses fail to consider. We put so much energy into launching our business, growing it, and making it thrive that we often forget to think about what happens when it’s time for us to step away. Whether you're planning to hand it down to your children, retire someday, sell your business, or simply want to make sure your company survives in your absence, succession planning is a critical piece of ensuring your hard work continues to pay off.
One day, I received a frantic phone call from a woman whose father had recently passed away. Instead of taking time to properly grieve, she found herself thrust into a web of secretive finances, multiple business entities, a total lack of legal documents that transfer ownership of the business, and as if that wasn't enough, the sudden appearance of foreclosure letters addressed to her father's business on the primary residence of her widowed mother. Yup, you heard that right. Her mother was going to be kicked out of her marital home because her father transferred the property into the name of the business, mortgaged it to the hilt, spent the money, and never did a moment of succession planning. I put her in touch with multiple lawyers and wished her much needed luck. Please don't do this to your family!
Today, I had a great conversation with Erin Edgar, an estate attorney, about how important business succession planning truly is. She shared stories about business owners who were insistent that they wanted their children to have ownership of their business when they passed, but never considered the need to discuss this with them, let alone train their children on the aspects of how to actually run the business. Please don't do this to your family either!
Here are some actionable steps you can take right now to start preparing:
1. Identify Your Successor: The first step is identifying who will take over when you're ready to move on. It could be a family member, a trusted employee, or even an external buyer. The key is to think about who has the skills, knowledge, and passion to lead the business into its next phase. Don’t just keep it in your head—start having open conversations with that person (or those people) now.
2. Document Critical Knowledge: Your knowledge is the lifeblood of your business. Create a “business bible”—a comprehensive document that outlines your processes, contacts, vendor relationships, and key business practices. Imagine if you took a month off tomorrow—would your successor know where to start? Having your expertise documented will ensure the smoothest possible transition, even if you step away sooner than expected. **Side note** You should be doing this for your key employees too!
3. Consider Legal and Financial Structures: Work with an estate attorney and a financial advisor to establish the right legal and financial structures for your succession. This might mean updating your will, setting up trusts, executing powers of attorney or establishing buy-sell agreements. The goal is to make sure that, from a legal standpoint, everything flows smoothly when the time comes.
4a. Train Your Successor: If you've identified your successor, start training them now. This doesn’t mean you’re stepping down—it just means you’re ensuring they have the skills and knowledge they need. Invite them to shadow you, make them part of big decisions, and get them comfortable with the challenges they'll face. The more gradual the handover of responsibility, the better.
4b. Position Yourself to Sell: If you're not choosing a successor, that's ok, but you're still building something of value. You can pass that value on to your loved ones by prepping your business to be saleable. Consult with a business broker now to find out the steps you should take to ensure the business can be someday be sold.
5. Keep an Eye on Your Exit Goals: Succession isn’t just about choosing someone to lead or prepping the business for sale—it’s also about making sure your personal goals are met. Are you aiming for financial security? Do you want the business to maintain its values? Clarify what success looks like for you in the transition, so you know if the plan is on track.
Succession planning might feel uncomfortable or like a distant priority, but it’s one of the most empowering things you can do for yourself, your business, and your legacy. The sooner you start, the more control you have over how things end—and the more confident you can be that your hard work will continue to make an impact long after you’re no longer in the driver’s seat.
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Stay Magical,
Cheryl
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