Four Common Mistakes to Avoid When Setting Up a Business Succession Plan in New Jersey

Small businesses help to form the foundation of the economy. The New Jersey Department of State cites data showing that there are more than 950,000 active small businesses in our state. As a small business owner, you need to be prepared for whatever challenges might arise. Among other things, this means setting a comprehensive business succession plan. Too many small businesses run into problems during the planning process. Here, our New Jersey business succession planning attorney highlights four of the most common mistakes that you need to avoid.

Mistake #1: Failing to Set Up a Business Succession Plan At All 

The biggest business succession planning mistake for small companies is also the most common: Failing to set one up at all. Without a plan, unexpected events—death, disability, retirement, etc—can leave a small business in New Jersey in serious turmoil. It is an oversight that can result in serious disputes and (potentially) undermine the business. By proactively creating a customized business succession plan, you can put your company in the best position for the future.

 Mistake #2: Not Setting Up a Truly Comprehensive Succession Plan (Too Narrow in Scope) 

A succession plan that is too narrow is one that will often fail to address all of the necessary components of a successful transition. For example, some small business owners may focus solely on transferring ownership without considering management roles, tax implications, or contingency plans for unforeseen circumstances. A comprehensive plan should cover aspects like leadership training for successors, detailed operational procedures, and strategies for potential market changes. By broadening the scope, you mitigate risks and set up the business for long-term success.

 Mistake #3: Not Properly Communicating the Succession Plan With Key Parties 

Communication matters. Keeping the succession plan confidential from essential stakeholders can lead to confusion and conflict. Failing to communicate with family members, business partners, and key employees may result in resistance or lack of preparedness when the transition occurs. Open dialogue ensures that everyone understands their roles and expectations.

 Mistake #4: Failing to Consider Funding Mechanisms (Buy/Sell Agreement, etc) 

Finally, overlooking the financial aspects of a succession plan can undermine even the most well-thought-out strategies. Funding mechanisms like buy-sell agreements are key for facilitating the transfer of ownership interests. Without proper funding, successors may struggle to acquire the necessary shares. It can lead to financial stress and, in some cases, loss of control of the company. Review your company’s specific needs and make sure the right funding mechanism is in place.

Schedule a Consultation With Our New Jersey Business Succession Planning Lawyer Today

At Poulos LoPiccolo PC, our New Jersey estate planning lawyers have the skills and experience to help small business owners develop a comprehensive succession plan. If you have any specific questions or concerns about business succession planning, we are here to help. Contact us today to set up your confidential initial consultation. Our law firm is proud to provide business succession planning services to small companies throughout New Jersey.

Source:

nj.gov/state/press-2023-0502.shtml#:~:text=According%20to%20the%20U.S.%20Small,employed%20by%20a%20small%20business.