What is Succession Planning
Succession planning is a strategy for passing on leadership roles from the ownership of a company to an employee or group of employees.
It ensures the companies run smoothly after an important worker moves on to new opportunities, retire, or pass away.
In addition, it can also provide a liquidity event enabling the transfer of ownership to raise employee leaders, so planning evaluates each leader skill, identifying potential replacements, training that employees so that they are preparing to take over.
Succession plans should be reevaluated and potentially updated each year or as changes in the company dictate. Also, businesses might want to create both an emergency succession plan, in the event a key leader resigns unexpectedly, and a one-term succession plan, for anticipated changes in leadership. In a large corporation, the board of directors, not just the CEO, will typically oversee succession planning. In addition, for large corporations, succession planning impacts not just owners and employees, but shareholders as well.
Succession Planning for Small Businesses
For small businesses and family-owned companies, succession planning often means training the next generation to take over the business. A larger business might groom mid-level employees to one day take over higher-level positions.
Training includes the development of skills, company knowledge, and certifications. The trained might include having employees cross-train and shadow various positions or jobs in all the major departments. This process can help the person become well rounded and understand the business on a granular level. Also, the cross-training process can help identify the employees that are up the task of developing multiple skill sets needed to run the company.
In small companies, the owner alone may be responsible for succession planning. For asset protection, some companies put in special considerations for life insurance. In business, a life insurance policy that names the other partner as the beneficiary. That way, if a partner dies at a time when the other partner would not have the cash to buy the deceased partner ownership share, the life insurance proceeds will make that purchase possible.
This type of succession plan is a cross-purchase agreement and allows the surviving partner to continue operating the business. All organisations, no matter their size, need succession planning. While it is less likely that you will have potential successors for every role in a ten-person company, you can minimally cross-train. Cross-training ensure that employees are ready to babysit the key job when the employer resigns. It keeps responsibilities from falling through the crack and will keep the assignment on track if a key employee leaf. It is not as effective as having a fully trained employee, but that is not always possible for every role.
Many companies have not introduced the concept of succession planning in their organisations. Others plan informally and verbally for succession for key roles. By this type of process, an employee is to have recognition as the strongest player on a certain team, so he is likely to succeed when the other employer is promoted or leaves. In other conversations, senior leadership teams put forth the names of employees they believe are strong players with great potential in their organisations. It helps other senior leaders know who is available for potential promotion or reassignment when they are looking for an employer to fill a key role.
What Businesses Need to Do.
You need to identify and understand the developmental needs of your employees. You must ensure that all key employees understand their career paths and the roles that are developing that need filling. You need to focus resources on key employee retention. You need to be aware of employment trends in your area to know the roles you will have a difficult time filling externally. As a business owner, you probably realise that operating a business can be full of risks. Turning a profit is not enough; you must also protect your business from claims and lawsuits.
Debts and mortgage obligations to third parties and vendors, claims for damages caused by your employees, product or professional liability, and consumer-protection issues are just some of the risks you will encounter. If handle improperly, these risks could result in the loss of both business and person assets. Knowing what risks you face and how to minimise or avoid them gives you the chance to run your business successfully. The goal of a comprehensive asset-protection plan is to prevent or significantly reduce risk by insulating your business and personal assets from the claim of creditors.
Unfortunately, most small—business owners are unaware of all the potential risks that can harm their business and the options that are available to protect themselves. An asset-protection plan employs legal strategies put in place before a lawsuit or claim arises that can deter a potential claim to help prevent the seizing of assets. If you have not decided on a protection plan, do not wait. The longer the plan has been in existence, the stronger it likely will be.
Asset Protection Planning
Strategies used in asset-protection planning include separate legal structures or arrangements, such as a corporation, partnerships, and trusts. The structures that will work best for you depend, in large part, on the kind of assets you own and the types of creditors most likely to pursue claims against you. Many different strategies have been developed over the years claiming to protect assets. Some of these plans use long-standing legal entities to carry out their intent. In contrast, others are legal or even illegal and promote a money-making scam on the innocent and uneducated. Some of the more common legal vehicles used for asset protection include corporations, partnerships, and trusts. There are several types of corporations that protect assets: business or C corporation, S corporation, and limited li8ability companies LLCs.
The appeal of the corporation as an asset-protection tool lies in the limited liability provided to its officers, directors, and shareholder (principals). Corporate principals have no personal liability for corporate debts, breach of contract, or personal injuries to third parties caused by the corporation, employees, or agents. While the corporation may be liable or responsible, a creditor is limited to pursuing only corporate assets to satisfy a claim. The assets of the corporate principals are not susceptible to claim or seizure for corporate debts. This protection forms a personal liability that distinguishes the corporation from other entities, such as partnerships or trust.
For more information contact us at Eventum for a consultation.