The tech and business worlds had a partial meltdown in late August when Apple CEO Steve Jobs officially resigned, passing the reins to Chief Operating Officer Timothy Cook. Jobs had been on medical leave since January because of pancreatic cancer.
The blogosphere went ballistic with speculations, assessments and opinions about how Apple’s products and prospects might change with the loss of its visionary leader. I won’t rehash these issues here—but I will warn you that Jobs’ resignation should have a strong effect on your business.
Why? Because, like Jobs, you need to prepare and think about succession planning.
While succession planning is especially important to family-owned businesses, the truth is it matters to every business. Although it can get complicated, succession planning essentially means creating a plan for how your business will operate and who will be in charge if you leave, whether through retirement, death or sale of the company.
Chances are you don’t have a succession plan in place. Like writing a will or creating a prenup, many of us prefer not to think about what would happen if we weren’t around to run our businesses, so we bury our heads in the sand.
Well, get your head out of there, because without a succession plan, your whole business could go up in smoke overnight. Here are five steps to creating one:
1. Choose a successor
Once you are no longer in the business, who do you want to be in charge? It might be a business partner, your spouse, one of your children or even a key employee. Discuss the possibilities with the people you have in mind, and get other key players on the same page. If you’re thinking of transitioning the business to a family member who’s not currently active in the company, bring them into the business slowly so they can learn its operations and decide whether or not they want to take on the leading role.
2. Get the proper legal documents together
Depending on the form of your business and your goals, you may need to execute a buy/sell agreement that will allow your successor to buy out other partners’ shares of the company, or you may accomplish the transfer to your successor through a shareholders’ agreement. Talk to your accountant and attorney to make sure the right documents are in place.
3. Finance your goals
Make sure the succession plan is adequately financed. If you have a partner and your partner dies, his or her ownership stake would most likely pass on to his or her survivors. If you don’t want the survivors involved in running the company, a key man insurance plan—that is, life insurance on the partners in your business—can provide the money needed to buy back ownership from a partner’s survivors. Talk to your accountant to make sure any other financial needs that are part of your succession plan are adequately funded.
4. Be prepared for disability
If a severe illness, family crisis or serious accident left you unable to work in your business for several months or more, what would you do? In this situation, a modified version of your succession plan can kick in to help. Figure out who could handle your duties for an extended period. If there’s no one qualified, start training someone now.
5. Incorporate retirement planning
If you are getting closer to retirement, plan for how you will transfer the assets and ownership of the company. Your options include selling the company outright, selling your share to your business partners or selling it to your employees via an Employee Stock Ownership Program (ESOP).
I’m sure Steve Jobs didn’t expect to leave his role at Apple so soon, but let his experience be a lesson to you in the importance of being prepared for the unexpected.