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Business succession planning: Avoid these common mistakes

Building a business is difficult. Succession planning can be just as challenging.

Why does my business need a business succession plan? A proper succession plan helps to better ensure a smooth transition. As with any plan, knowing the most common mistakes can prove useful.

Examples of typical missteps in succession planning include:

  • Avoiding the process. A business succession plan is not a sign of readiness to move on. Instead, it is a step towards building your legacy and optimizing the value you have created. As noted in Entrepreneur, find a successor that will build the business in a sustainable and successful manner and your business legacy will survive long after you exit. Identifying strategic buyers can maximize the value you receive for your equity.
  • A failure to document. You may believe you have a plan in place. After all, you discussed it with the person or group you plan to have take over leadership or ownership. As noted in a recent publication by Market Currents Wealth Management, a verbal agreement is not enough. Get appropriate legal advice and fully document your intentions and agreements.
  • Shortsightedness. When replacing a leadership role or looking for a buyer, it is tempting to find a candidate who is interested in growth and can be molded to meet your needs or a current business contact who won't have a steep learning curve. This is not always best for future business interests or optimal valuations. Instead, it may be wise to seek out prospects who possess deeper resources to meet the company's future needs.

Simply putting together a business succession plan is not enough. This plan should take multiple factors into consideration and include protections for the future. Legal counsel can help. Attorneys experienced in business succession planning matters can craft a plan to meet your needs and better ensure a smooth transition.

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