In short, succession planning is your corporate exit plan. Your exit plan answers the critical question: What do you plan to do with your business when you are no longer involved in it?
It may seem counterintuitive to devise an exit plan right away when you launch your business – and to most business owners, it apparently is. According to one source, 72% of small businesses don’t have a succession plan in place.
Nonetheless, planning your business’ future in the event that you – as its founder – will no longer be there to nurture it is vital to its success and longevity. Not to mention, your succession plan will largely govern how you run your business, from which legal entity to select, to growing a team, licensing IP, and seeking outside funding.
Why does my business need a succession plan?
First and foremost, your exit plan will govern your growth strategy. For instance, if you want to sell your business, you will need to update your tax structure accordingly (if you run your business for tax efficiency, you are less likely to attract buyers in an open market and should opt to maximize value instead). If you want to pass your business to a family member, you will want to involve them intimately in the day-to-day operations of the business to ensure they are equipped to take over. And if you want to make your fortune licensing your company’s intellectual property, ensure that you take early steps to secure any and all IP rights that you intend to claim.
Second, your exit plan will ensure that your company has longevity beyond your own involvement. Whether due to retirement, life circumstances, or the mere desire to more on to other ventures, you likely will not have a hand in running your business forever, and it’s important to ensure that it will outlive you.
How can a business attorney help me prepare a successful exit plan for my business?
An experienced business planning attorney will sit down with you to discuss your options: Should you plan to sell your business? Enter into a strategic partnership? Pass it down to an employee? Dissolve? License your IP? Merge with another company?
Second, your attorney will help you pinpoint both the legal structure and the tax strategy necessary to making your planned exit feasible. For example, if you want to execute an IPO, your attorney will likely advise you to organize as a C corporation instead of as an LLC.
Finally, your attorney will help you secure and solidify your wishes in the form of a formal legal document, for instance, through a power of attorney if you plan to pass your business to a family member or friend, or through an asset purchase agreement if you would like to acquire or merge with another organization.
If you have questions about how to structure, run, or exit your own business, contact the Wilmington business planning attorneys at Rountree Losee for a consultation.