10/ 01/ 2002
Provided by Kiplinger
If you are just starting your own business you probably haven't given much thought to what will become of your company when you are no longer able to participate in day to day operations. Effective succession planning involves building the value of the business during your period of ownership and management, and having a plan in place when you are ready to step down. It means that management authority and control are delegated responsibly. Finally, it means that the benefits of ownership are fairly distributed to those who are entitled to them. It begins with an analysis of your answers to the following questions:
- How old are you? How is your health? How and when do you plan to retire?
- How old are your children? What exposure have they had to the business? How would you rate their business acumen and leadership skills?
- Do you want to keep the business in your family?
- If not, then what is your exit strategy? What estate-planning steps have you taken to manage the proceeds of an eventual sale?
- If the business is to stay in the family, then which family member(s) would you select to control it? Are they truly committed to the long-term business objectives of the company?
- Is there a need for transition management involving key non-family employees?
- If you sell the business to your children or other family members (or even to your employees), how will they finance the purchase? How will you get the liquidity or proceeds that you need to live comfortably during retirement or to meet your estate-planning objectives?
- If you choose to transfer the business as a gift (or at a price below fair market value), how can you be fair to "non-active" children and protect the business from their demands?
- What continuing role, if any, do you envision for yourself?
- Will your withdrawal be partial or complete, and what will your timetable be?
- Transferring ownership to your children or other family members;
- Sale of your equity to remaining co-founder(s);
- Sale of some or all of your equity to some or all of your employees;
- Sale of some or all of your company (either a portion of the equity or a spin-off of a particular operating division of your business) to a competitor, strategic buyer or investor;
- Sale of a significant portion of your company to the general public through an initial public offering;
- Implementation of a creative growth-and-transition strategy, such as franchising, licensing or joint ventures.
- Your business strategy and personal financial objectives and retirement needs;
- The availability of a viable family successor;
- The presence of co-founders or minority shareholders in the company;
- The pool of key employees who might be interested, capable and financially qualified for ownership;
- Trends within your industry;
- The valuation of your company, and the status of the financial markets.
Andrew J. Sherman, a nationally recognized corporate and transactional attorney, has spent over two decades as a legal and strategic adviser to hundreds of entrepreneurs and growing companies. He is a senior partner of the Katten Muchin Zavis law firm in Washington, D.C. and chairs its local corporate and technology department. Sherman is also an adjunct professor at the University of Maryland and Georgetown University, where he teaches entrepreneurship and business planning.
