Business Succession Planning

I attended this month an interesting presentation on Business Succession Planning from Matthew S. Johnston, LLC in collaboration with the Small Business Development Centers of Maryland.

Business Succession Planning is an ongoing process that is worth to be reviewed at least once every 1-3 years.

As a business owner, selling your business can be quite emotional and you need to have answered in advance the important questions about business succession such as: 

• Should and can your spouse/children run your business? 
• Have you talked to your management team about this topic?
• What about your employees?
• Have you planned for a Power of Attorney in case you cannot run your business, even temporarily? 
• Do you have the proper insurance in place? This may be particularly important when you have business partners with stakes in the company.
• What is the current value of your company? Its value will change over time and needs to be reviewed regularly. 
• If your business is sold, where will the money go: to a family trust, to estate benefits or somewhere else?

There are 3 critical events to plan for, namely the "3 D's": Divorce, Death, and Disability.

Additionally, business owners may also consider different reasons for exiting their business, the "3 R's": Retirement, Relocation, and Regret.

Successors of a business can be:

• Business partners.
• Third-party buyers (I would include Search Fund, competitors, entrepreneurs, traditional private equity firms, etc..).
• Members of the family.
• Employees.

While not mentioned whether it is specific to the US or not, one of the surprising facts of this presentation was that statistically, the vast majority of children does not want to run a family business; to the point that a family business would disappear after the 3rd generation. Of course, exceptions exist.