You have built a great company. Cash flow is looking good. The business is expanding at a steady pace. So everything is great, right? Wrong. Similar to estate planning, a business needs to plan for the future. One of the reasons you are told to incorporate your business is so it becomes something tangible that can be passed on. How do you get value back out of the work you have put in?
Succession planning is important. Most bylaws or operating agreements have provisions that say that if one of the owners is to die the business or the other owners will buy the deceased owners share of the business. Where is the business going to get the money for such a purchase? What about retirement? Most people, even entrepreneurs, want to retire at some point. Planning who will take over, how you will phase yourself out, how you will be compensated, etc. are all things that need to be planned out and put in writing.
It’s fairly common for a family business to be passed on the children but these businesses often fail because of a lack of planning. Dan Vos Construction Co. of Ada, Michigan is now entering its third generation. Dan T. Vos was recently named president of the company that founded by his grandfather. Dan T. Vos, who is 37, began working with the company in 1995 and has worked his way from laborer to vice president, the position he held before this most recent promotion. In addition to his work with the company, Vos also earned a degree for Ferris State for Business Administration.
The most recent succession plan for Dan Vos Construction Co. was well planned and thought out. They identified who they wanted to take control. He was groomed and trained for 17 years at nearly every aspect of the business. He was mentored by a long standing president. Dan Vos Construction has a successful business model and the new president will likely continue that success.
Succession planning, like estate planning, is not fun and exciting. It’s not like the formation process that is full of excitement of the possibility. It’s not like the contracting period when you are developing new business. But like estate planning, it’s very important. It allows you to control the future of the entity that you have taken years to build. It also allows you to protect your investment in the business. Without a succession plan, thousands of dollars can be lost or, even worse, your business can become unable to operate.
Source: “Third generation leader says he won't tinker with his father and grandfather's success formula” by Jim Harger of MLive.com