Business Succession Planning

Most small business owners are justifiably proud of the business they have built or sustained. And they should be! Small businesses, including family businesses, are the lifeblood of the American economy. Many business owners devote their careers to building and growing a business, perhaps with the dream of having something to pass down to the next generation.

Unfortunately, those dreams are often not realized. Only about 30% of family-owned businesses survive the transition to a second generation; fewer still, about 12%, make it to a third generation. Only 3% of family-owned businesses survive to a fourth generation.

One major reason is that business owners often fail to actively plan for the future of a business. They may assume that a child will simply step into their shoes and keep running the business, or that their surviving spouse will be able to easily sell the business. And often, the day-to-day demands of running a small business make owners put off anything that doesn’t feel urgent—like business succession planning.

What is Business Succession Planning?

Business succession planning is a process that ensures the transition of leadership and ownership within a company in the event of the death, disability or retirement of an owner. Succession planning involves identifying and developing new leaders who can replace old leaders when they leave, retire, or pass away. This ensures that the business continues to operate smoothly without interruptions.

Benefits of Business Succession Planning

The risk of failing to create a business succession plan, of course, is that your business won’t survive your death or retirement. But aside from avoiding that risk, there are multiple benefits to succession planning for a business. Those benefits include:

• Continuity: Planning ensures that the business remains operational and profitable during transitions.
• Employee Retention: A succession plan helps retain talented employees by providing them with clear career paths and growth opportunities.
• Preparedness: Business succession planning prepares the company for unexpected events, such as the sudden departure of key personnel.

Even if you intend to sell your business when you retire, rather than handing it off to a family member, succession planning can preserve its value and help keep the business running in good order while the transition is being made. If you do want a family member to take the helm, business succession planning sets them up for the greatest chance of success.

What to Include in a Succession Plan

A succession plan can be simple or complex. A straightforward plan might include the following steps:

• Identify Key Roles: Determine which positions are critical to the business's success.
• Evaluate Potential Successors: Assess current employees to identify those with the potential to fill key roles.
• Develop Talent: Provide training and development opportunities to prepare potential successors for their future roles.
• Document the Plan: Create a formal succession plan that outlines the process and procedures for transitioning leadership.

Items to address in business succession planning may include discussion of:

• Real estate used by the business, whether leased or owned.
• Bank loans.
• Receivables and payables.
• Work in progress.
• Seasonal fluctuations that affect the business.

A simple plan is better than no plan. Often, a simple plan outlining the means of valuing the business, paying the owner, consulting agreements with the owner and other tax and items unique to the business is all that is needed in the event of a sale to a new owner.

Contact an Experienced Michigan Business and Estate Planning Attorney

If you’re a business owner, don’t leave the future of all that you have worked for to chance. Work with an experienced business and estate planning attorney who can help you develop a succession plan that is right for your business.

With office locations in East Lansing, Mt. Pleasant, Grand Rapids, and Detroit, The Gallagher Law Firm offers a broad scope of estate planning services to individuals and their families. To learn more about how we can assist you, contact us online, call (517) 853-1515, or email bpg@thegallagherlawfirm.com.