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Avoiding the Epic Fail of a Business Succession Plan

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Business succession
A business succession plan should be part of every business owner’s estate plan.

For a business owner, the success of our business impacts our daily lives. The success of our business succession plans (say that five times fast!) is inexorably linked to having a well-conceived and properly prepared plan which is coordinated with our estate plan. Both plans need to be built to withstand challenges, which are outlined in the article “Five events that can ruin a succession plan” from Kenosha News.

Let’s take a closer look at the “Five D’s of Succession Planning.”

Death. Believe it or not, businesses can succeed in the face of the owner’s death. However, this is only if all of the right steps are taken, and the right people are prepared to lead. If the business owner has named a successor, created a plan, and purchased business interruption insurance and/or life insurance, the business has a shot at continuing. However, in most cases, the estate plan fails to address leadership succession, liquidity, and leadership.

Disability or Disease. Sometimes disability and disease can be worse than death to a business. If the right advisors and plan are in place for death, the business may survive. However, a sick or disabled business owner, especially one who has been making all the key decisions, makes it less likely that the business will survive. If a disabled business owner has lost some cognitive function and isn’t able to make the best decisions on behalf of their business and their employees, the business may lose value.

Divorce. Nothing destroys a business like extended litigation. This often happens when a business owner divorces. A smart couple will work together, despite their personal acrimony, to protect the value of the business and their joint assets. Tearing each other apart harms their children and their business. The best approach is to have a plan created that includes what would happen to the business if the owner divorced. Think of it as a prenup for the business.

Drama. Our tendencies toward drama impact our businesses. If there’s a business succession plan and those plans are communicated to the leaders, and those leaders make clear to middle management and the employees that there are plans in place to continue the business, the company can remain stable. In the absence of communication, rumors will impact everyone – from key employees to management to vendors. Nothing hurts a business more than other companies in the same business gossiping about its impending demise. The shining stars of the company will flee for more stable opportunities, vendors may refuse credit, and it spirals downward.

Drive. Most business owners are self-driven individuals who love to see their inspiration, ideas, and energy grow into successful businesses. But when it’s time to get into the weeds of managing details or people, they’re generally not that interested. Or, they dig into the details and then the company is depending on one person to succeed—rarely a good idea. When that drive is lost and there’s no plan to hand things over to the next generation or key employees, the business can slump, lose value, and eventually, close its doors.

A strong business succession plan does more than protect a business owner. It protects the owner’s family, the employees, and their families and communities. An estate planning attorney who routinely works with business owners will be familiar with the strategies available to ensure that all the pieces are in place to continue the business and protect the family.

Reference: Kenosha News (August 25, 2019) “Five events that can ruin a succession plan”

Other articles that may interest you:

Time to Review Your Estate Plan?

Planning for the Unexpected