I’ve heard about “succession planning” for my business. Is it important, and where do I start?

There is an old business adage: The parent makes $1 million, the child makes $10 million, the grandchild loses $10 million and the great-grandchild owes $10 million. Too often this adage becomes reality when a business founder fails to adequately plan for who will succeed him or her when he or she retires, dies or decides to sell the company.

Think about it this way—succession planning can maximize the company’s value for the owner(s), provide security to key management and employment for the workers, all while preserving a community resource.

The key question to ask is, “If I’m no longer here, how will the business continue to operate?”

Start your business succession planning early. Five years in advance is good. Begin by sitting down with a succession-planning adviser, generally the business owner’s banker, along with his or her attorney and accountant. The adviser should outline the pros and cons of the many business and estate planning tools that can aid in transferring or selling the business. The more time you spend on succession planning, the smoother the transition process is likely to be.

Once the plan is complete, all of the players should know where they are going to end up when it is implemented. The end result is to have the right plan that will benefit your business, your family and your employees after you’re gone.

Then put agreements in writing. Succession and contingency plans, including obtaining insurance and establishing buy-sell agreements today, can help eliminate power struggles down the road should the unexpected happen.

Lastly, take the time to train your successors. How can you expect your successor to take over and run your business successfully if you haven't spent any time training him or her? Your succession plan will have a much better chance of success if you work with your successor(s) for a year or two before you hand over the reins. For solo entrepreneurs, sharing decision making and teaching business skills to someone else can be difficult, but it's definitely an effort that will pay big dividends for the business. iBi