A survey of over 140 North American CEOs revealed that nearly half of their companies do not have a business succession plan:
While 69% of respondents think that a CEO successor needs to be “ready now” to step into the shoes of the departing CEO, only 54% are grooming an executive for this position.
Part of the reason seems to be that corporate boards of directors swing toward hiring the next “big star” to take over. That may work for big corporations (sometimes), but smaller companies that lose an owner may flounder and die without designating a successor to take over.
Small and mid-sized companies are often driven by one powerful personality, but that does not mean they have to end when the driving force leaves. Business succession planning is simply an answer to the question “what do you want to happen if the owner leaves or dies or moves to Bermuda?”
At a minimum, take care of these four things:
- Pick and train a successor;
- Make sure the owner’s will passes on the business;
- If necessary, use a buy-sell agreement to pass on the owner’s interest; and
- Fund the transition costs with a life insurance policy on the owner.
Do not disregard business succession planning. A succession plan is like a business’s will. And just like a will, you’ll gain peace of mind once you have one in place.