Business Succession Planning: Five Common Mistakes You Should Avoid
Business succession planning is essential. It helps to ensure that companies are prepared to transition from one generation of leaders to the next. Alamaringly, a significant percentage of small businesses lack even a basic succession plan. A recent study cited by The Motley Fool found that 58% of small businesses had no succession plan in place.
If you are starting the business succession planning process, you are taking a crucial step to help protect the future of your company. At Arnold & Smith, PLLC, we want to make sure that you and your business are in the best position to thrive. Here, our North Carolina estate planning lawyers highlight five of the most common business succession planning mistakes that you should avoid.1. Never Creating a Business Succession Plan
The most common business succession planning mistake is also the most damaging: failing to consider and create a business succession plan at all. Without a comprehensive business succession plan, companies can find themselves in a very difficult and very vulnerable position. Transitions are never easy. Without a plan, companies may not make it to the next generation. If you and your partners are just beginning the succession planning process and you have questions about where to start, reach out to our Charlotte business succession planning lawyer for immediate help.2. Adopting an Informal Succession Planning Strategy
While not having a succession plan is the biggest mistake a business owner can make, relying on an informal succession planning strategy is not much better. With an informal succession plan, you are relying on everyone reaching a common understanding and actually following through. Time after time informal business succession plans fail.
Even when everyone is acting in good faith, it is simply hard to make an informal succession plan work—especially if you have a complicated business. Often, people think that they have reached a common understanding, but they actually have different views on key issues. A formalized, written business succession plan helps to prevent problems and effectively resolve conflicts.3. Failing to Ensure Adequate Funding for a Smooth Succession
Even the best of business succession plans can be undermined due to lack of funding. What type of funding arrangements are required depends entirely on the nature of your company and provisions within your succession plan. One of the primary considerations is that the future leaders of the business need to be able to acquire (buy) the shares of a departing business owner if and when that proves to be necessary. In some cases, business owners may want to consider obtaining life and disability insurance on their business partners.4. Overlooking the Small Details (Day-to-Day Operations)
At that broadest level, a business succession plan is about identifying future leaders and ensuring that they have the knowledge tools to effectively lead the company tomorrow. A business succession plan should also address some key details regarding day-to-day operations. Contingencies should be in place to address any unexpected emergency.
Here is an example: Imagine that the owner and manager of a small business in North Carolina suddenly passed away. Does the person who is taking over operations have all of the information that they need to start working right away? Do they know the passwords for accounts? Do they know which bills need to be paid? A smooth transition of day-to-day operations is essential.5. Making Assumptions Without Having an Open Conversation
A well-crafted business succession plan should limit the number of assumptions it makes. A common mistake that people make is assuming that people are willing and able to take on a certain key role without having an open and frank conversation. This is often an issue for family-owned companies. Your plan should not simply assume that a family member is going to take on a key responsibility unless you have had a clear conversation with them. If you have any questions about business succession planning for a family-owned company, our Charlotte estate planning attorneys are available to offer assistance.Call Our North Carolina Business Succession Planning Lawyer for Help
At Arnold & Smith, PLLC, our Charlotte estate planning attorneys have extensive experience advising businesspeople and entrepreneurs on the full range of business succession planning matters. If you have any specific questions about creating a comprehensive business succession plan, we can help.
Contact our firm today for a confidential, no obligation consultation. With law offices in Charlotte, Monroe, and Mooresville, we provide business succession planning services throughout North Carolina, including in Concord, Kannapolis, Matthews, Huntersville, Gastonia, Pineville, Oakboro, Wadesboro, Weddington, and Rockingham.