There comes a day when every business will transition to the next generation of leadership, whether externally via a sale, or internally via a succession plan. If you are a reader of this article in this publication, this topic is likely an especially salient one, particularly when it comes to succession planning. While every business’s succession plan, motives, and mechanisms are different, there are several mistakes that business owners should be aware of regardless of the desired for their specific succession plan.

Mistake #1: Having No Plan At All

The first—and most straightforward—mistake with respect to succession planning is simple, and that is having no plan at all. It is easy for business owners to bypass succession planning altogether: an owner may be focused and consumed by the actual running of the business: working on the business as well as working in it. However, unexpected events like disability, death, or other life events can occur without warning, and can accelerate the need for an effective plan.

Mistake #2: Letting the Plan Become Outdated

Likewise, it is also a mistake to have a succession plan in place, whether through a buy-sell agreement, operating agreement, or other document, but to let it become stale by failing to adequately review the plan and its underlying agreements from time to time. Things can change over time, whether it be the people involved, a valuation or valuation methodology, or the applicable laws (tax or otherwise) that may be underpinning the mechanics of the plan. It is imperative that to periodically review the plan to ensure that it remains proper.

Mistake #3: Underestimating Owner Involvement

Further, owners should also be cognizant of their actual involvement in the business, and the steps that may need to be taken prior to their exit in order to ensure an orderly transition. Owners may be much more present in the business, whether with respect to vendor or customer relationships, or management of the internal operations or employees, than they initially realize given that the owner has simply become accustomed to their level of involvement over time. When a leadership transition is on the horizon, owners should consider opportunities to begin to involve their successor in managing the foregoing acts, in order to avoid disruption as much possible.

Aligning Business and Personal Planning

These are of course only very high level, general items to consider, and each business requires its own individual analysis. Additionally, owners will want their succession plan to be done in accordance with other aspects of their personal planning, whether it be their estate plan, personal tax planning, and personal financial planning, as the best succession plans will adequately balance the need to transition the business with the desire to achieve the most efficient outcomes for both owners and future owners on a personal level. Owners should avoid procrastinating on these items, as some tools that are available may require years of planning.

Final Thoughts

If you are owner contemplating your succession plan, contact your attorney, CPA, financial advisor, and other advisors sooner rather than later to discuss these matters.

R. Austin Stevenson is a business and transactional attorney at Strauss Troy Co., LPA. He can be reached rastevenson@strausstroy.com, or 513-768-9745