Running a business can be hectic, requiring you to constantly put out whatever fires pop up every day. The time-consuming nature of the job, however, is causing owners to overlook a key component of their long-term viability: succession planning.
According to a CNBC report, one survey found 80% of business owners without a succession plan in place blamed their busy schedule. In addition, 40% said taking time to work toward a succession plan simply wasn’t worth it, with the day it will be needed still far in the future. That might be a mistake.
Why businesses need a succession plan
A lot of business owners think a succession plan is only necessary when they’re near retirement. That’s far from the case. Life can deliver unexpected events – a sudden illness, a disability, the death of a loved one. These are some of the circumstances that might force a business owner to abruptly step away from their role.
If no succession plan is in place, it can cripple the business as employees scramble to figure out how you, the owner, planned to keep the company on a path to success.
How to set up a succession plan
Setting up an effective succession plan requires taking proactive steps. Score.org has a basic outline of things to think about, such as:
- Deciding who will take over the business when you step away, and through what means
- Doing a business valuation to take stock of everything
- Actively preparing your successor for the eventual takeover
- Reviewing the plan on a regular basis to ensure it remains viable
The succession plan should be part of your business’ legal documents, but it’s often a good idea to make your wishes clear in your estate plan as well. That way, no matter what happens, you are able to guide your family and colleagues forward, while ensuring the legacy of your business remains stable.