It may feel like you should limit your expenses right now, as the economy continues to struggle. Sure, a business succession plan would be nice to have, you might think, but surely you can wait until more favorable circumstances arise.
The problem is, you could end up needing that business succession plan at any time, including before the economy recovers. And, there may never be a better time to put one in place.
A business succession plan spells out what should happen to the business if one of the current leaders passes away or becomes incapacitated. In a family business, this could mean setting up a literal succession from parent to child. Or, you might wish to transfer management of the business to a partner or executive.
Consider the case of the Galena Canning Company, a specialty food business that sold premium sauces and seasonings across the U.S. The founder never put a business succession plan in place, even after he learned he had cancer.
Instead, the founder consulted with his wife and child about whether they would like to run the company after his death. When neither was interested, he decided to sell the thriving company.
That sale was set for March 30, 2020. The founder died two weeks before the sale was to close. Then, the pandemic hit. The company’s sales dropped by 90% in a month. The buyer’s financing fell through and the deal got postponed indefinitely.
A business succession plan wouldn’t have prevented the losses from the pandemic, but it would have made clear who was in charge once the founder died. That could have allowed the company to survive instead of liquidating, as seemed necessary.
Luckily, the founder’s son was able to step in and run the company. However, he hadn’t been intimately involved in the running of the business, despite summers spent working there. What had been a project to build the business back into something valuable to sell became a full-time job for the son.
A good business succession plan aims to preserve institutional knowledge as well as clarifying who is in charge. Without one, your family might spend months trying to decide what to do while simultaneously trying to keep a going concern operating.
Succession planning is a core risk-management task
A lot of people avoid business succession planning for the same reason they avoid estate planning. It’s a touchy subject that many people assume there will be time for down the road.
But a solid business succession plan protects the continuity and survival of your business in the event something unexpected occurs. You need this plan like you need insurance or other basic risk management.