As a business owner, planning your exit from your company and creating a succession plan may not always be top of mind. It can seem like an intimidating process or something that you can worry about later. However, that’s not always the case.
“You always want to have a plan in place in case of emergencies or if you simply decide to hand the business off to someone else,” says Scott Gnau, Commercial Lending Team Leader at First Federal Lakewood. “How will your business continue operationally and functionally once you exit? You want to make sure you and key employees are aware of your plan to make a transition that is as smooth as possible.”
No matter the size of your business, every business owner should begin creating a succession plan as soon as possible.
Smart Business spoke with Gnau about what a succession plan looks like and why including your banker in your succession plan discussion is important.
What is a succession plan?
A succession plan provides information that details what happens to the business once an owner exits the company. These plans offer details as to who will take over the business and who will step into leadership positions if they become available. Succession plans are created in order to make the exit and the transition period that follows as smooth and worry-free as possible for those who remain with the company to run the business.
What should a succession plan include?
While succession plans will likely look different for every business, almost all of them start with a strategy. Begin the plan with a defined strategy that outlines where your business is headed and provide a clear understanding of who the key people are that are going to take over in which positions. Take the time to understand who your team(s) consist of and who your key advisers are — those who provide guidance to the company. Your succession plan should have these key people outlined.
The next step is to put the strategy in place and into motion. If you outlined key people in your business, start bringing them up to speed as much as possible on what is happening in the company so that the transition will be smooth. A successful succession plan will keep your business, brand, employees and jobs in place once you exit your company.
Having a team of advisers at your side is also important for your succession plan. These can include CPAs, attorneys, financial advisers, bankers, insurance agents and a board of directors. The more communication and open conversations that you have with your advisers and your team, the easier the transition out of your business will be.
Lastly, you need proper documentation to support your succession plan. This may include key man life insurance — some insurance companies call this coverage key person life insurance — which helps against financial loss if the business owner, or other key person, passes away.
Take the time to review and audit your succession plan annually to make any changes. A good rule of thumb to follow is if you’re bringing in new employees, advisers or management, you should review and update your succession plan.
Why should you include your banking partner in succession planning?
The right banking partner should be able to help in your succession planning process. This should be a topic of conversation throughout your relationship because it helps keep the bank apprised of any changes in your business and can help you identify any possible shortfalls in your plan.
This person will understand your team and the operations of the business and can be a great addition to your group of advisers. ●
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