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Avoiding pitfalls when choosing a business successor

On Behalf of | Mar 1, 2024 | Business Succession Planning |

By naming someone to take over ownership of your business after you retire or die, you can ensure the continuation of your enterprise beyond your lifetime. Still, choosing a successor might not be effective if you make one or more mistakes when creating your plans.

With careful planning, you can prevent unexpected circumstances from derailing your business succession strategy.

Making a rushed decision

Even if you have a successor in mind, you should take time to evaluate your choice. Your preferred new owner might not have the skills yet to run your company, so you should implement a plan to train and progress your candidate.

In addition, announcing your choice prematurely might hurt your business morale. It is also possible that some of your other employees might resent your pick to take over the business and undercut your successor over time.

Only taking performance into consideration

A key employee may be doing a good job in a current position. However, this does not mean the person is fit to be a leader. A strong performance in a functional role of the company does not always indicate that the employee can translate those skills into a managerial position of the whole business.

Failure to develop talent

Your succession plan might only focus on elevating a single person to succeed you. However, you could miss out on the opportunity to help multiple employees rise in your company. Your business may benefit from a plan that makes sure other individuals are ready to assume leadership positions.

No plan to finance a business purchase

In some cases, a business owner arranges for a successor to buy the company. However, this might not work out if your candidate lacks the financing to make the purchase. Therefore, your plan should develop a financing strategy for your successor. For example, you might provide for your new owner to provide a down payment with succeeding payments over time.

Any business succession plan should tailor itself to the specific company in question, so do not hesitate to consider any particular element of your business when making your plans. Covering your bases can be the key to a successful handoff of your business.

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