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Covid-19’s Impact on Succession Planning -
From:
James J Talerico Jr - SMB Expert - Management Consultant James J Talerico Jr - SMB Expert - Management Consultant
Dallas - Ft. Worth , TX
Tuesday, July 21, 2020

 

At the beginning of year, approximately 90% of business owners said that they either had a succession plan they weren't happy with or that they have no succession plan at all.  The Covid-19 crisis has made succession planning a priority at every small-to-mid-sized business, and business owners are contacting different advisors to help them with a succession plan for a possible, short-term Covid incapacitation, and to reassess their long-term succession plan.

Because Covid-19 is a significant, immediate health risk to business owners, every small-to-mid-sized business should have an "emergency succession plan" that considers the risk of multiple business leaders contracting Covid-19 and, thus, multiple potential successors. Leadership  priorities for interim succession situations include safely continuing to manage the company's Covid-19 reopening plan, while also maintaining good communications, short-term stability, happy employees, and continuity of the business. If the business does not have an emergency succession plan, the business' human resources manager should be facilitating discussions with senior managers and working with experts to creation of one, as well as looking at ways the business can improve its "emergency disaster plan," (which every business should have) based on what the business has learned from this crisis.

In addition to short-term succession planning, many businesses are also rethinking their long-term succession planning.  A business owner's exit plan, which includes succession … whether it be transferring the business to a family member, partner, trusted employees, or in a sale to a third-party … is the means by which many business owners are able to retire.  Here are six-(6) important areas business owners should be reviewing right now as it relates to their long-term succession plan:

1. Insurance: Many succession plans use insurance -- life and/or disability -- to pay for the purchase of the business owner's stock or interest in the business; however, over time the amount of insurance often does not match the current value of the business; moreover, in many succession plans not enough attention is paid to the owner's long-term disability coverage.  The risk of long-term disability is especially important today given the possible, lasting debilitating consequences of Covid.  So, the business owner's insurance as it relates to succession is the first thing they should be evaluating with their insurance agent.

2. Business Valuation: Shareholder agreements and similar succession contracts usually spell out how the business should be valued when the owner exits the business, but if succession is supposed to happen this year, re-appraising the business might be a question succession stakeholders need to consider.

3. Gifting As A Sales Strategy:  There may be a gifting play because of Covid-19, if the value of the business has decreased and the business owner is gifting stock to a family member, as the lower the value of the business, the more ownership interest one can transfer without a tax consequence.  Current tax laws allow an individual to gift up to $11,580,000 without any federal gift tax, but this benefit is scheduled to drop by almost 50% after 2025, and it could change sooner, if President Trump isn't reelected.

4. Revisiting Your Estate Plan:  A good succession plan should work in tandem with the business owner's estate plan.  Reassessing your estate and succession plans and adjusting these plans to take advantage of changing laws and economic conditions is another thing a business owner and his or her financial planner may need to explore this year. 

5. Low-Interest Rates Invite Buyers: You might think it's a bad time to sell when things are down, but actually this is when the government intervenes to reduce interest rates to stimulate the economy, which attracts more buyers.  If you have a strong brand, you might be able to get a buyer to recognize that goodwill and work out a mutually beneficial agreement in this market.

6. Key Employees: Positioning the leadership team for succession is an ongoing process.  If the business is pivoting because of Covid-19, the leadership team may need to master new skills.  Businesses might also consider creating a business contract with key employees to incentivize continuity of the management team when the business transitions to a new owner, and, furthermore, consider key-person life insurance to help the business recover in the event of an early death or disability of a key employee in a post Covid world.  Why go to this extent for your high performers ? A McKinsey survey found that in complex organizations, for example, high performers are an impressive 800% more productive than the business' low performers.

Small to mid-sized business (SMB) expert James J. Talerico, Jr., CMC © can help business owners facilitate a comprehensive, integrated approach to succession or exit planning, where he oversees the process for the CEO, brings in the experts needed, and maintains good communications with the CEO, board, family members, employees & other stakeholders throughout the process, while recommending the industry best practices embraced by the business' leading competitors to deliver a substantial succession planning ROI for the business owner. 

If you haven't created a succession plan, or aren't happy with the one you have, the good news is that it isn't too late !  Succession planning starts with the business owner asking several fundamental exit planning questions, such as: What is the business worth ? How do I maximize the value of the sale ?  Who would be the best buyer for the business ?  What are the legal & tax implications of selling the business ? Will I have enough to retire on when I sell the business ? and How do I find, and mentor a successor ?  "The hardest part of the process," according to James J. Talerico, Jr. who has helped many business owners position their businesses for succession, "is starting the process." 

The Covid-19 pandemic has altered the economic environment in which businesses operate and, consequentially, has likely impacted their business' succession plan.  Even though business owners are spending much of their time keeping their business going, it is also important that they keep their eye on the finish line and ensure that the vehicle to get there -- i.e. their succession plan – is tuned up and there are no obstacles in their way to ensure a safe journey to their final destination.

 

Looking for more information about successfully navigating the Covid-19 Crisis ? Our Small Business Owner's Covid-19 Survival Kit is available through our on-line store on my Square web site https://greater-prairie-business-consulting.square.site/

It contains over two dozen files filled with a plethora of financial, tax, HR, safety, leadership, sales, marketing, and government information to help business owners survive the Covid-19 Coronavirus Crisis. 

We offer a 100% Money Back Guarantee if you are not completely satisfied, and free updates !  

 

About the Author

A nationally recognized small to mid-sized business (SMB) expert, Jim Talerico has consistently  ranked  among  the "top small business consultants followed on Twitter.”  With more than thirty - (30) years of diversified business experience, Jim has a solid track record helping thousands of business owners across the US and in Canada tackle tough business problems and improve their organizational performance.

A regular guest on the Price of Business on Bloomberg Talk Radio, Jim’s client success stories have been highlighted in the Wall St Journal, Dallas Business Journal, Chicago Daily Herald, and on MSNBC’s Your Business, and he is regularly quoted in publications like the New York Times, Dallas Morning News, Philadelphia Inquirer, and on INC.com, in addition to numerous, other industry publications, radio broadcasts, business books, and Internet media.

Jim Talerico is a certified management consultant CMC ©, an honor bestowed on only 1% of all consultants worldwide. He is also the founder and CEO of Greater Prairie Business Consulting, Inc.

For more information about Greater Prairie Business Consulting, Inc., go to:

www.greaterprairiebusinessconsulting.com.

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www.LinkedIn.com/in/jamesjtalericojr

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News Media Interview Contact
Name: James J Talerico Jr, CMC (c)
Title: Founder & CEO
Group: Greater Prairie Business Consulting, Inc.
Dateline: Irving, TX United States
Direct Phone: 800-828-7585
Cell Phone: 972-816-1666
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