It is not easy making a success of the business entity you start, either alone or in partnership with others. But having made it a success, you should not let it wind up with your exit, retirement, disability or death. You owe it to yourself, your family members, employees of the company and the society at large to make sure that the business continues to prosper even after you relinquish the reins.
Hence leaving a business legacy is important. Business legacy is also called succession planning. Here are five steps to help you make that all important transition in your life smoothly.
How To Leaving Business Legacy
When To Start Planning
Ideally, you should have the plan at the back of your mind once you have crossed the first hurdles of your startup, so that any unforeseen eventuality does not put the company on the back foot. Be sure to communicate this rough plan to partners, if any, and key managers. Review and amend your plan on a regular basis. Strictly speaking, you definitely need to have a formal business legacy in place a few years before your retirement.
How To Plan
Get a valuation done of your business assets. Spell out the business goals for the near future. Choose a successor and announce the same to all concerned. Hold wide-ranging consultations with an accountant, banker, lawyer, and insurance agent to ensure that the plan is on a sound footing with regard to financial, legal and viability considerations. It is a good idea to involve your family members in this process. That way they know and agree to what is coming and will not be taken by surprise down the line.
Choosing A Successor
The key decision here is whether you want a family member or an outsider such as a senior executive in the company to take over. There may be several contenders for the responsibility in your family. It can be heartbreaking to choose one over the rest and it can also lead to family squabbles and internal strife. Involve all the stakeholders and make sure the decision-making is fair, transparent and objective.
The main criteria would be the educational background, experience and any demonstrated leadership abilities of the contender. If it is an outsider that you have to choose, again make sure that you do not go for your favourite on emotional grounds but rather choose based on that person’s previous track-record and future potential. Needless to say, in both the cases there has to be a fit between the person and the company in terms of values and vision.
Give the successor enough time to adjust to his new role by participating in the company’s affairs. This is more easily done if that person is already an employee of the company. In case a family member is chosen, induct that person into the company and let him work his way through the several departments. This will allow him to learn the ropes before he takes over. Also, it will allow the employees and clients to warm up to the successor and they will not feel alienated under the new leadership.
In the midst of all this do not forget to pay attention to the tax implications of handing over the business to someone else. Estate taxes can sometimes be as high as 55%. Take the advice of a professional.