What Is Business Succession Planning and Do You Need It?

In business, succession planning refers to planning for and creating processes to support the eventual transition of leadership roles or business ownership from one person or group of people to another. Depending on the situation, business succession planning might be part of someone’s estate planning.

Keep reading to find out more about business succession planning, why you need it, and how Barilari & Williams, LLP, can help.

Corporate or Organizational Succession Planning

Organizational succession planning occurs when corporations or other business entities do the work to identify critical positions and ensure there is a talent pipeline to feed them. This helps to ensure that no critical position sits unfilled, potentially holding up other processes and growth. An example would be cultivating leadership staff so that someone is ready to step seamlessly into the role of CEO if the current CEO retires.

While succession planning is often aimed at leadership positions, companies must also consider other critical roles. At any level of the organization, for instance, it’s important to ensure there are plans to keep any technical roles that require specific skills filled. An app-development business relies heavily on developers and coders, for example. Without those skill sets, the business wouldn’t have new products. So these technical jobs—at all levels—must be considered when creating an organizational succession plan.

Succession Planning for Business Ownership

For business owners, succession planning also includes thinking about who will manage or own the business after them. For example, someone who worked to start a local bakery may want to pass that business on to their children when they die. Or, an individual who built up a regional chain of mechanic shops may want to allow an adult child to manage that business and eventually inherit it. In a third example, someone who owns a controlling interest in a business may want to pass on those shares to their heir in the future.

These are all times when estate planning and succession planning might go hand-in-hand.

For example, did you know that in some cases, you can put businesses or business assets in a trust to help facilitate succession? You can create a living trust and transfer the ownership of the business into that trust. This allows the business to pass to the successor you choose without going through probate. As an added bonus, trusts help keep details about the business’s assets and financials private—that doesn’t happen if the business ends up in probate.

There are other options for passing on ownership of a business. You might consider gifting the business to someone during your lifetime or setting up a partnership to facilitate the transfer. Working with an estate planning attorney who is experienced in helping with business succession planning helps you understand what options might be right for your situation.

Benefits of Succession Planning

Whether you’re thinking ahead about corporate succession planning for scalability, creating plans in light of potential future M&A activity, or working to keep your business in the family, succession planning has a lot of benefits when it’s handled correctly. Some important benefits of succession planning include:

  • Ensuring the business can continue to operate smoothly, even in light of unexpected events like the retirement, death, or incapacitation of key employees or owners
  • Helping to prevent leadership gaps that can occur when a key employee or business owner leaves the organization
  • Providing the successor with a clear understanding of their role and responsibilities so they’re better prepared to take over the business.
  • Protecting the interests of stakeholders such as employees, customers, shareholders, and suppliers.
  • Promoting long-term strategic planning that can help support stability and growth to ensure the business remains competitive and profitable over the years

Common goals of succession planning include avoiding disruptions for employees and customers, ensuring seamless operation of the business through any transition, and protecting the interests of those you want to own or run the business after you.

Do You Need a Lawyer for Business Succession Planning?

Depending on your goals for business succession planning, an experienced business or estate lawyer can provide a lot of value to the process. Here are just three ways an attorney can help with business succession planning:

  • They can create legal documents. Whether you want to put your business or some of its assets in a trust to better facilitate the transfer of ownership later or you’re looking to sell your business to someone else soon, correctly drafted and executed legal documents can be paramount to success. An experienced lawyer can help ensure you have contracts, trusts, and other legal documents that protect your interests, your business, and the interests of your successor.
  • They can provide legal knowledge and advice. You may need to know how your current customer or vendor contracts might be impacted by any type of succession. Or, if you own your business in partnership with someone else, you may need to know how to pass on your part to others. These are just two examples of very specific scenarios an attorney can help with.
  • They can facilitate communication, discussions, and negotiations as needed. This may help avoid misunderstandings or disputes that could arise during the succession process.

If you want to protect your business or other assets now and during transfer to heirs in the future, contact Barilari & Williams, LLP, to find out more about how we can help.