When to transition 

A common misconception is that business succession plans only pertain to situations where a family-owned enterprise is transferred to a family member or insider while the owner is still living. That is untrue. A business succession plan may also be utilized when a family-owned business is transferred to another person, such as a trusted employee, or if the enterprise is sold to a third party.

There is no definite timetable for when the time is right to transfer power and responsibility of a family-owned enterprise. Open and honest communication between the owner and other interested family or business associates about the owner’s health and desire to continue working are imperative to a successful transition.

Seek expert advice 

While it may seem simple to transfer a company from one leader to the next, there is more to it than merely changing the name template on an office door.

To ensure a leadership transition unfolds smoothly, it is important to have the company transition plan committed to writing. Hopefully, all that needs to be done is to put the plan into action rather than negotiate the terms of transition when it’s time for them to occur.

A business owner seeking to establish a viable succession plan would be wise to consult an attorney experienced in creating those plans. Other experts, such as financial planners or tax advisors, should also become valued members of the transition team.

Matters to consider

An important reality business owners should embrace when pondering a business succession plan is whether the proposed new leadership even wants the responsibilities associated with the position.

Not all family members or close friends are qualified to lead a company, so company owners would be wise not to equate a familial relationship with business savvy.

If that’s the case, a succession plan may not be advisable. Perhaps the sale of the company to an interested buyer would be the ideal way to dispose of the entity.

When there’s a sale, there’s a price

With a sale, an owner needs to be realistic about the market value of their enterprise. However, when human emotions intervene, objectivity is lost, which does not help resolve the succession dilemma.

Being realistic about the value of the business is equally as important as is determining whether the prospective new owners are viable choices. A company boss isn’t doing him or herself any favors if the desired sales price is too high for otherwise qualified purchasers to secure financing.

Or, perhaps funding isn’t the issue.

Maybe the vision for the company’s future shared by the prospective purchasers isn’t in line with the current owner’s. While they may not be involved in the enterprise once it sells, some businesspeople egotistically believe they are forever associated with a company they once owned, whether that’s true or not.

Avoid stress

Creating a succession plan can inject stress into the family dynamic, especially when the heir apparent is not the person that actually gets named as the company’s incoming owner. It is also important to remember about family members who haven’t worked in the business but somehow perceive that with new ownership, the door has been opened for them to get involved in the company.

Corporate structure is another matter to consider when creating a succession plan, says Zucker. He says it is imperative that corporate structure and estate planning including the business should be in concert with one another. This is important so the desires of the elder family member, and the company, are clearly stated and are in no way contradictory. Sometimes this is accomplished by the creation of a trust or Last Will and Testament, but it’s best to consult with attorneys licensed in your state to be sure these matters are handled correctly.

“You want to be focused on the front end with corporate structure and the back end with estate planning,” says Zucker.

Watch for potential pitfalls

While planning for a smooth transition in company leadership is usually practical for all those involved, it does have its drawbacks.

For example, there is a risk that something changes between the time the document is created and when it needs to be implemented. Life events such as divorce or unexpected death can throw a wrench into an otherwise straightforward succession plan if not pondered in the document.

Therefore, you must “monitor and amend a plan to adapt to the realities of the situation or else it could lead to litigation,” notes Zucker.

Other practical and potential obstacles exist that could stand in the way of a smooth succession transition. For example, in case of incapacitation, it would be wise for a business owner to share key company information, such as passwords and client/customer specifics with the successor. Systems and processes not committed to writing will likely get lost in the shuffle, a potentially huge inconvenience for the incoming boss.

Knowing when the time is right

Any time in the life of a company is right for a business owner to think about a succession plan, but certain aspects of the plan will differ depending on various factors.

For example, a succession plan for a younger business is usually less complicated than it could be for a more mature enterprise. Reasons include a more established entity could be larger and more complex than a fledgling endeavor, meaning it would be wise to appoint a person extremely familiar with all aspects of the business rather than a newbie.

However, the reality is the timing of a succession plan’s creation is usually correlated to the age of the owner or where they are in life. Another factor is considering who is on the other side of
the succession plan.

No matter what is decided, Zucker acknowledges the decisions needed for a viable succession plan are not necessarily easy.

“Be honest and open about your intentions and create documents to match those intentions, which may require tough family conversations,” he says.

Tami Kamin Meyer is an Ohio attorney and writer who tweets as @girlwithapen.