Whether you own a small startup or a long-established company, creating a solid business succession plan is critical to ensure your business’s continuity and protect your legacy. A well-thought-out succession plan prepares your business for a leadership transition, safeguarding its long-term success. This blog explains how you can craft an effective succession plan specifically designed to meet your particular needs.
Valuation: Understanding Your Business’s Worth
Though your business doubtless means the world to you, it is essential to understand its objective value to plan realistically for succession. Let’s take a look at the elements that go into determining your business’s actual monetary value.
When Your Business Is a Farm
Here in Wisconsin, where a substantial portion of businesses are farms, planning for farm continuation is a central part of our estate planning practice. In addition to income, farm valuations include unique agricultural factors, such as:
- Land acreage
- Soil productivity
- Accessibility to markets, suppliers, and water resources
- Compliance with environmental regulations
- Farm equipment (tractors, combines, plows)
- Farm structures (barns, silos, sheds)
- Stored produce and grain
- Livestock
General Business Valuation
For most other businesses, valuation involves assessing:
- Owned property and structures
- Market conditions
- Stored or invested assets
- Equipment (computers, tools, necessary machinery)
- Furnishings
- Income
- Intellectual property
There are several methods used to pinpoint the value of businesses, such as: income-based approaches, market comparisons, and asset-based valuations. Accurate valuation helps set realistic expectations and identifies your financial needs during the transition. It is important to have your business valuation done by respected experts familiar with the appropriate industry.
Planning for Training and Development
Once you have a clear understanding of your business’s value, the next step is to develop a plan for training and development to ensure that your successor has the necessary skills and knowledge to take over the business and keep it running smoothly.
Training Programs
Your training programs should include opportunities for new or promoted personnel to familiarize themselves with operational procedures, financial management, being in a leadership role, and company values. This can be accomplished by rotating their assignments or having them work on strategic projects.
Identifying Potential Candidates
Choosing the right successor is crucial to the future success of your business. Potential candidates can come from within the company or from external sources. You may select a particularly talented employee who has demonstrated leadership qualities, a strong understanding of the business, and a commitment to its goals. Sometimes, such a candidate is in your family or close circle of friends and has been groomed for this leadership position for years.
On the other hand, you may feel more comfortable looking for a successor from outside the company. In that case, you may want to recruit an experienced professional from the industry or connect with a recruitment firm specializing in leadership positions. Once you have identified a few suitable candidates, it’s time for:
An Interview Process structured to assess technical skills and leadership qualities, including presenting scenarios that reflect real business challenges to evaluate how the candidate would handle them.
Evaluating each candidate’s experience, resume, problem-solving abilities, vision for the business, and alignment with your company’s values. Seek feedback from other stakeholders in the business to get a well-rounded perspective. Also, remember to check references.
A Trial Run to observe the chosen candidate’s performance and evaluate how they manage actual business interactions in terms of decision-making, ability to handle pressure, and fitting in nicely with the existing team.
Offer Feedback during the trial period to assess performance and determine whether the candidate is ready to take on the leadership role as demonstrated by how they handle criticism and make necessary changes.
Even after the decision is made, it is wise to have a few meetings with your successor to review how everything is going and discuss whether further adaptation is called for. Following these directions should result in a smooth transition.
The Takeaway
At Borakove Osman LLC, we are committed to helping you navigate the vital process of business succession. We know how central your role as a business owner is to your sense of self and how challenging passing the baton can be. Contact our business succession attorneys now so we can assist you in taking this significant step. You can count on us to help you move forward with satisfaction and pride.