A succession plan consists of a contingency plan (plan for a crisis brought on by the sudden absence of an owner or critical executive of the business) and a transition plan (long-term plan for the change that will occur in the ownership and management of the business). It is a mistake for a business owner wishing to have maximum value from a business to be without a succession plan.
Here are foreseeable situations that could occur at any time:
- The owner of the business dies. Who controls the business? What does the owner know that no one else knows? If there has been no preparation to prepare the business for sale and no one involved with the business is in a position to purchase the business, should the business be liquidated? How can the survivors obtain value from the business?
- A critical executive of the business dies or becomes disabled. What does the executive know that no one else knows? Does the executive have sole authority to do certain things that must be done? How long will it take to find an effective replacement?
- The founder and owner-manager of the business suddenly cannot participate in the business. Who steps in to fill the void and at what cost to their existing duties? If the owner is an owner-manager, is there someone else trained and available to manage in the void? Who controls the business?
Obviously there are many other situations that could also be detrimental even with planning, but will certainly be worse without it. There are no plug-ins available. A succession plan is not drafted and implemented quickly or easily.
Maximum value will not be received from a business that does not have planning in place for foreseeable future events.
