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Succession planning is a crucial part of successful business management. This article will help you outline the five steps to writing your own succession plan.
The “succession planning template word” is a document that provides the steps to create a succession plan. The document also contains a template of what the document should look like.
In the event that a firm owner or key employee quits, a business succession plan comprises step-by-step instructions that set processes. Our succession planning template assists business owners in addressing issues such as who will take over the company, how long it will take, and what standard operating procedures must be handed down.
In succession planning, there are five typical steps:
- a succession timeline
- Choosing your successor
- Make your standard operating procedures more formal (SOPs)
- Your company is important to you.
- Invest in your succession strategy.
Obtain a copy of the Succession Planning Template.
Download our succession plan template as a DOCX or PDF by clicking the links below:
What is Succession Planning and How Does It Work?
The collection of activities, timetables, and standard operating procedures that are prepared ahead of a change of ownership in a corporation is known as succession planning. Business owners may construct a succession plan in a variety of methods, including using our succession planning template or hiring an expert who is familiar with the process.
Who Should Be in Charge of Developing a Succession Plan?
Any successful, growing company owner should consider developing a succession plan. A succession plan is often thought of in terms of retirement or the sale of a firm, but it is also important in the case of an unexpected death or sickness. A well-crafted succession plan functions as a will for your company, ensuring that the company’s best interests are served.
When Should You Make a Succession Plan?
When it comes to using this succession planning template to construct a strategy, business owners may be unsure when they should begin. The answer, like a personal will, depends on a number of things, but it usually boils down to as soon as feasible.
Creating a succession plan requires time and effort, and precisely answering the questions is difficult. As a result, many company owners begin succession planning at least five to six years in advance of a transfer. In the event of a death, sickness, or other unforeseen need for transition, creating a succession plan should be considered as a contingency.
Resources for Succession Planning
Working with your present accounting firm for succession planning assistance might be a good option (provided they have experience with helping to develop succession plans). The quantity of assistance you need will most certainly increase in proportion to the urgency of your succession planning requirements, as well as the size and complexity of your company. Consider whether to employ a temporary accounting and finance specialist or enlist the help of an accounting business.
You may use the following resources to assist you with succession planning:
PwC
PricewaterhouseCoopers (formerly known as PwC) is one of the accountancy industry’s “Big Four” firms with substantial expertise in succession planning. Because of the company’s self-described concentration on small, privately owned firms, there’s less chance of becoming simply another number, and it’s more likely to cope with the challenges you’ll face.
SCORE
SCORE, the nation’s biggest small business mentoring organization, has created a simple primer on succession planning. The true benefit is that small company owners may apply to be linked with mentors who volunteer to help them. This solution is worth considering for company owners that want basic succession planning assistance.
Accountant from the area
Small business owners may wish to consider working with a Accountant from the area (provided that accountant is well versed in succession planning). Entrepreneurs who choose this route can ask around in their personal network, tap in to their local Chamber of Commerce or other local business support groups, or search for a certified public accountant in the directory provided by the American Institute of Certified Public Accountants.
How to Write a Succession Plan in Five Easy Steps
It might be difficult to write a succession plan. Many company owners avoid it because they aren’t prepared to deal with the complexity. We’ve broken down the process into five easy phases to help you along the road, including selecting a successor and deciding whether to sell your company via Insurance for life, an Loan for Purchase, or other means.
The following are the five stages to creating a company succession plan template:
1. a succession timeline
An departure succession plan and a death-or-accident succession plan are the two main kinds of succession plans. To safeguard your company and successors in the case of unforeseen occurrences, you may want to establish a death-or-accident succession plan well in advance of when you believe you’ll need it. When you have a particular plan to transfer ownership of your small firm, you should write an exit succession plan.
The following are the two most typical forms of succession plans:
- Exit succession plan: A strategy for transferring ownership at a specified point in time, such as when the owner retires.
- A death-or-accident succession plan is a strategy for transferring ownership of a company in the case of the owner’s death or incapacity.
While an accident plan can be considered at any age, an exit succession plan should be developed when you are within several years of retirement or intend to otherwise quit the firm. When developing an exit succession plan, you should have a precise date in mind for transferring the firm, as well as whether you want to stay active in the business after the transition or desire a clean break.
Template Suggestion
Answer all of the questions in section one of the succession planning template. Fill in any remaining data, such as how long you anticipate the transition to continue, if you’re developing this succession plan to depart your company on a certain date.
2. Choosing your successor
Choosing who will take over the firm is a crucial part of drafting a succession plan. Many company owners see their firm being passed down to a family member, such as a kid. A business partner or a significant employee in the company are other popular options. Of course, there’s always the prospect of an outside purchase.
The following are examples of common successors chosen by company owners:
- Co-owners
- Members of the family
- Employees who are important
- Buyers from outside the company
Choosing a successor may be tough, and it requires thinking about what is best for everyone, including the company. While it may seem that keeping the company in the family is the best option, bear in mind that second-generation firms have a high failure rate. As a result, many business owners choose to sell their company and leave a monetary inheritance to their family.
Template Suggestion
Filling up profiles for at least three possible applicants is a good idea. This will allow you to make a preliminary assessment of everyone’s abilities and experience. Even if you’ve already decided on a candidate, it’s a good idea to have a back-up plan in case the individual departs or declines to become an owner.
3. Make your standard operating procedures more formal (SOPs)
You should appreciate the value of tracking and formalizing day-to-day operations as a small company owner. Standard operating procedures should be written so that your management and staff, as well as any future owners of the company, can refer to them. A daily checklist of opening and closing procedures, training for new personnel, and a performance management system are all important elements to record.
SOPs differ from one company to the next, however they usually contain the following items:
Standard Operating Procedures (SOPs)
While standard operating procedures are not necessary, many firms include them in their original business plan and update them as processes evolve and the company becomes more sophisticated. These SOPs should be in place prior to succession planning, as they will aid your company in dealing with growth and change.
Template Suggestion
We’ve included a checklist for these areas in our succession plan template; feel free to add or delete any as needed. Attach an up-to-date document to your succession plan and cross it off your list after you’ve finished it.
4. Your company is important to you.
Identifying the worth of your company should be done early on—and on a frequent basis. Many business owners, however, have a tendency to overvalue their company, and these miscalculations may lead to financial mistakes when preparing for retirement.
There are various techniques for determining the worth of a company, ranging from utilizing a basic business valuation calculator to get a ballpark estimate to more complicated methods for valuing a firm and employing a professional assessor. Consider engaging with a firm that specializes in business appraisal, such as BizEquity or Guidant Financial.
Template Suggestion
It’s a good idea to think about the lowest price at which the company may be sold. When the company is finally put up for sale, it might take a long time to find a buyer ready to pay the asking price. The succession plan should include how long to wait before lowering the price, how much to cut the price, and what the lowest acceptable bid is.
5. Invest in your succession strategy.
Few purchasers have enough cash on hand to pay for your company up front. This is why every succession plan should include a strategy for how the buyer will pay for the property, whether via a loan, monthly payments, or another method. The last thing you want is to reach your retirement date, or triggering event, only to discover that your selected successor is unable to continue operating your company.
This is also why a buy-sell agreement will often be required as part of your fundraising strategy. This is a legal contract in which your customer commits to take a specified activity (such as taking out a loan or purchasing Insurance for life) in order to fund the purchase. Once you’ve decided on a form of financing, book an appointment with a lawyer to create your buy-sell agreement.
Typical Funding Options for Succession Plans
The following are the most typical methods for funding succession plans:
Insurance for life
Most commonly used when a family member or co-owner is taking over the business, a Insurance for life policy can help your successor purchase the business from you or your heirs. Contrary to how it sounds, Insurance for life isn’t only used in the event of one’s untimely death. Permanent Insurance for life builds cash value that can be taken out at any time, so it can also be used in the event of retirement, disability, or any other triggering event.
Insurance for life arrangements are common in family successions, especially when you may have multiple children, but only one is taking over the business. With your chosen successor as the beneficiary, a Insurance for life payout can enable them to purchase shares from your other children, thus leaving everyone with some compensation and financial security.
Loan for Purchase
An Loan for Purchase is money borrowed by the buyer in order to purchase the business. This is common when a key employee or outside party is taking over and they need some funding to afford the purchase. Buyers can typically get 70% to 80% of the purchase price financed from a bank or the Small Business Administration (SBA)—which is great news for sellers who want to be paid in full upfront.
Loan for Purchases are secured against future profits of the business. While this makes them a generally reliable option, it also means a bit of work for the seller. Prior to the purchase, you’ll need to provide a lot of details about your business for the bank’s due diligence. Even then, however, the loan is not guaranteed. Pre-approval can provide some security, but it would need to be undergone regularly (every six to 12 months) up until the transfer date or triggering event.
Financing from the seller
Financing from the seller is when the buyer pays you back gradually over time. This is one of the easiest and most flexible arrangements, as the business owner and buyer can set whatever terms they like. Most agreements involve a down payment of 10% or higher, followed by monthly or quarterly payments with interest until the purchase is paid for in full. Again, however, the exact terms can vary widely.
The key downside to Financing from the seller is the time it takes to get paid back. Especially if you’re relying on the sale to fund your retirement, a 20-year term may be less than ideal. However, given the flexibility of Financing from the seller, it can be possible to find an arrangement that works for everyone.
Professional Advice on Business Succession Planning
We asked industry experts in succession planning for advice for company owners who are considering putting up a succession plan. A crucial stage is to choose the suitable successor, as well as to maintain reasonable expectations throughout the process. Many company owners also wonder whether they should consider putting up a succession plan.
When putting up a corporate succession plan, keep the following in mind:
Prepare Your Successor in Advance
Ray McKenzie, Founder & Managing Director at Red Beach Advisors
“The vast majority of organizations lack a comprehensive company succession plan and never expect to require one.”
“The most prevalent mistake made by company owners is that they exclusively store and retain information for themselves.” Signatory rights, passwords, access, and key phrases are all examples of this.
“Every six months, and if a key person departs the organization, review your company succession plan.”
Maintain a healthy sense of realism in your expectations.
Founder of Alexander Abramson PLLC, Ed Alexander, Esq.
“Having unreasonable expectations is the largest error small company owners make in their succession planning (apart from not having one).”
“First, many business owners have false expectations about how much their company is worth. It’s their child, and they have an emotional attachment to it that can’t be expressed in a profit and loss account.
“Second, according to research from the Family Business Institute, 88 percent of small business owners feel that passing the company on to their children is a feasible succession choice. Only 30% of small enterprises will be passed down to a second generation, and only 12% will be passed down to a third generation.”
Consider the Consequences of Failure to Plan for Succession
Patrick Hicks, Head of Legal for Trust & Will
“If your company has significant assets or people, having a business succession plan becomes even more crucial.” If you run your own firm with only yourself and no assets, the disadvantages of not having a strategy may be less severe.
“If you have workers, think about who will be able to pay those people and continue operations after you pass away.
“Machinery, equipment, supplies, intellectual property, and customer lists are all significant assets—the brand and reputation connected with your company—that may all be lost if you don’t have a strategy in place to deal with them.”
Failure to examine your succession plan on a regular basis is one of the most frequent errors company owners make. Many things change over time, and in order for your succession plan to be successful, it must be evaluated and updated on a regular basis. These might include, among other things, corporate changes, tax legislation modifications, value adjustments, and new industry developments.
For family-owned firms, you’ll also want to think about things like shifting family dynamics—do all family members share the same vision for the future, or are all important actors still on board? It’s critical for company owners to update and alter their business plans to account for such developments.
Conclusion
Answering uncomfortable questions is sometimes the most difficult component of succession planning. What unanticipated incidents should you anticipate? Who is going to take over your company? How will you, your spouse, or your children be compensated? With the aid of our succession planning template, you can answer these questions. You may also want to consult with legal or financial professionals who have expertise in succession planning.
Succession planning is a complex process that can be difficult to understand. The “succession planning template excel free” provides a step-by-step guide on how to write a succession plan.
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