Picking someone to lead your company after you step down is probably among the hardest aspects of retiring (or otherwise moving on). Sure, there are some business owners who have a ready-made successor waiting in the wings at a moment’s notice. But many have a few viable candidates to consider — others have too few.
When looking for a successor, for best results, keep an open mind. Don’t assume you have to pick any one person — look everywhere. Here are three hot spots to consider.
1. Your family. If yours is a family-owned business, this is a natural place to first look for a successor. Yet, because of the relationships and emotions involved, finding a successor in the family can be particularly complex. Make absolutely sure a son, daughter or other family member really wants to succeed you. But also keep in mind that desire isn’t enough. The loved one must also have the proper qualifications, as well as experience inside and, ideally, outside the company.
2. Nonfamily employees. Keep an eye out for company “stars” who are still early in their careers, regardless of their functional or geographic area. Start developing their leadership skills as early as possible and put them to the test regularly. For example, as time goes on, continually create new projects or positions that give them responsibility for increasingly larger and more complex profit centers to see how they’ll measure up.
3. The wide, wide world. If a family member or current employee just isn’t feasible, you can always look externally. A good way to start is simply by networking with people in your industry, former employees and professional advisors. You can also try placing an ad in a newspaper or trade publication, or on an Internet job site. Don’t forget executive search firms either; they’ll help screen candidates and conduct interviews.
At the end of the day, any successor — whether family member, employee or external candidate — must have the right stuff. Please contact our firm for help setting up an effective succession plan.
It’s easy to fall into the trap of thinking about a succession plan as being about only two people: you and your successor. But a truly graceful passing of the baton to the next leader hinges on total staff buy-in — or, at least, acceptance. Getting managers and key employees involved in the planning can help you garner that buy-in and, ultimately, ensure a successful transition.
Remember: Misinformation, rumors, threats about quitting or refusals to support the new boss are often inevitable in a succession. To help keep potential sources of conflict in check, identify stakeholders who may have strong concerns about the next leader or the succession planning process itself. Then work out problems with them early on. You may want to start with the easiest of the bunch and work your way up to the individual who appears most dead-set in his or her opposition.
In reality, a succession plan isn’t just a plan — it’s actions as well. Please contact us for help devising the best approach and executing it every step of the way.
Corporate taxpayers that retain earnings in excess of the reasonable needs of their business rather than pay such earnings as dividends to shareholders are at risk for the accumulated earnings tax (AET). The AET is primarily an issue for closely-held companies because closely-held companies are more likely to have dividend policy influenced by a single shareholder or a small group of shareholders.
“Reasonable needs of the business” include, among other business needs, working capital, planned expansion or acquisitions, and replacement of facilities and equipment. Whether planned business needs are considered reasonable for accumulated earnings tax purposes depends upon facts and circumstances that are unique to each business.
We believe that a review and analysis of your overall situation will help determine how to best utilize the profits from your growing business without running afoul of the prohibition on accumulating earnings. Please call our office to discuss strategies to retain your corporation's earnings and profits.
If you are operating your business as a partnership, you should have a written partnership agreement. This is true for family partnerships as well.The need for a partnership agreement can be summed up in two words: things change. You and your partner/s may agree about everything now, but disputes could arise later. Or one of you could die unexpectedly, leaving the survivor/s to deal with the deceased partnerâ€™s heirs.The basic provisions of a partnership agreement should include the parties to the agreement, the company name, purpose, location of the business, and the division of management responsibilities. The agreement should also indicate the following:* Initial capital contributions (or services in lieu of capital).* How and when additional capital contributions may be required.* How profits and losses will be shared.* How much of the profit is to be distributed and how much is to be left in the company for growth.Beyond the basics, the agreement should anticipate major events and spell out how to deal with them. For example, if one partner dies, what are the rights and obligations of the other partner/s? Under what circumstances can a partner leave, retire, or be expelled? What are the financial arrangements for departing partners? How long must an ex-partner wait before starting a competing business?A partnership agreement can't address every possible contingency, so consider an arbitration clause to handle disputes that you and your partner/s can't resolve on your own. Without such a clause, you may face a very expensive lawsuit to settle disputes.You and your business will benefit from a properly written partnership agreement. See your accountant and your attorney for assistance in getting it done right. Give us a call; we are here to help you.