If you own a business, you worked hard to get it up, running and successful. Succession planning makes sure your business survives when you don't.
Most businesses don't think about succession planning until a crisis hits. Running a successful company takes a significant amount of effort and practically all of your time. Who has time to think about a future crisis, but one that may be way off in the future? Well, you better think about succession planning or that future crisis can cripple the business.
One of the more infamous cases of a failure to do proper succession planning was Joe Robbie. Robbie was a very successful businessman. Most people, however, remember him as the owner of the Miami Dolphins football franchise. He also built the stadium the team played in with his own money.
When Joe Robbie died in the early 1990s, he had an estate valued at just under $100 million dollars. Despite the fact he was an attorney, he had done almost no succession planning. There was no indication from him as to how the businesses were to be handled, ownership transferred and so on. It was chaos and his various family members started suing each other. Then things got really ugly.
The IRS issued a tax bill to the estate to the tune of roughly $45 million dollars. Although Robbie was worth $100 million, most of it was in the fixed assets of the team and stadium. There was no cash on hand to pay the tax bill. The team and stadium ended up being sold for a fraction of their value to pay the taxes. The family ended up losing the team, stadium and most of the other businesses because no succession planning was done.
With succession planning, it is important to realize that you don't have to have a $100 million dollar estate to run into problems. If you own a business, you must do succession planning. Why? There needs to be a clear indication of who will run the business after you pass away and who will own it. To avoid IRS issues, planning needs to be done to make sure there is sufficient cash on hand to pay any tax bill. Fail to address these two issues and you place all your had work at risk.
As you can probable surmise, the best strategy for succession planning is specific to the business in question. Your business and personal situation is unique, which means your plan must be as well.