As a small business owner, it can seem like you are constantly in planning mode. Planning for the next quarter, advertising, acquiring new employees, and product procurement are just some of your many duties that require a focus on planning. With all that you already have to do, coming up with a contingency plan for when you no longer operate the business can seem like something that is easy to ignore for now. After all, you just started the company and retirement seems light years away.
Why Contingency Planning is Important Now
When you take the time to form an exit or contingency plan for your business as soon as possible, it affects the way you choose and develop the leadership and management team of those who will come after you. This isn’t something that you want to leave to chance. Knowing who will lead the company after your retirement is crucial for its ongoing success. Unfortunately, companies without a transition plan in place find this out the hard way when the business struggles to move forward after its founder is no longer involved in day-to-day operations.
What to Include in a Succession Plan
An effective succession plan provides detailed information for at least five core concerns. The first of these is risk management. It’s a good idea to gather a contingency planning team rather than attempt to write the entire document yourself. The risk management portion of your plan should include actions to take in case of an emergency and making sure that you personally have disability and life insurance.
Next, you will want to cover who will act as key personnel upon your retirement, death, or sale of the company. Be sure that it includes instructions on the management of company stock and also check that the key personnel section is complete before moving on to the next section.
Before forming a committee and sitting down to write your contingency plan, speak with your financial advisor about your financial goals after leaving the company. It’s also a good time to discuss how your family would meet its financial needs if you were to die unexpectedly.
You should already be reviewing your company’s profit and loss statements on a regular basis. This information will help you create an improvement plan for gross profit margin. If you’re concerned that key employees might leave, consider implementing a bonus system to entice them to stay.
Finally, end your plan with details about what marketing efforts to take on if work flow significantly declines. Don’t overlook the fact that your current marketing strategy may need to change to focus on new customer demographics or a different product or service line.
Differentiating Between an Exit and Succession Strategy
An exit plan is a document you create when you intend to sell your ownership in the company. A succession plan outlines how the company will operate after your retirement or death. It is important to consider both when you create your contingency plan.
You may also wish to consider provisions in the event of your unexpected death, disability, disagreement with business partners, departure from the company, or how a divorce could affect your business. We invite you to contact Aura Wealth Management today if you’re struggling with any aspect of contingency planning.