Fewer than one out of four private companies have a formal succession plan according to the National Association of Corporate Directors.
Putting a succession plan in place has many benefits and helps to curtail uncertainty and conflict, especially in the case of family-owned businesses where deep emotions play a role.
A common oversight
There are various reasons for putting off the job of succession planning. Often business owners are too focused on the day-to-day challenges. Some believe succession will work itself out over time and some are simply reluctant to take on a project that seems so complex.
Planning strategically for the transition of ownership and management has many benefits:
- The survival of the company and its future growth
- Facilitation of retirement for current business leaders
- Ability to exercise control before someone else steps in to make decisions
- Reduction or elimination of income and estate taxes
- Continuation of harmonious operation if a family-owned business
A major part of any succession plan is helping to identify future leaders. For instance, this kind of plan will enable a company’s board of directors to look beyond skills and consider a candidate’s past performance, emotional intelligence and commitment to company values.
Succession planning often begins by engaging the services of an appraiser to perform a valuation. The value of the business will affect everything from compensation levels and retirement plans to gift taxes and shareholder agreements. The results are significant since the focus of a succession agreement is to preserve the value of a business, recognize its potential for growth and pass it along to future leaders intact.