Your role as a business owner will come to an end someday. Plan ahead – way ahead – to ease the transition.
If you’re typical of small to mid-sized privately-held businesses owners, the day-to-day concerns of running your company are more than enough to keep you busy. What will happen when you retire or otherwise leave the business for others to manage is probably not an immediate concern.
It should be. From family-owned businesses and sole proprietorships to partnerships and LLCs, survival of the business depends on planning for succession well in advance. Far too many companies fail once the principal owner is no longer in charge. In fact, the U.S. Small Business Administration (SBA) estimates that fewer than one-third of family-owned businesses survive a transition to new management.
So succession planning is critical, and should be addressed well before a changeover occurs. Here are four tips to help get that process started:
- Call in the Pros. You’re an expert on your own business, but not necessarily on the complexities of transferring control of it. Start talking with your accounting firm and your attorney about succession planning. You’ll need an accurate, objective evaluation of the company’s value and financial health, and a close acquaintance with the legal and tax issues involved. Once you’re up to speed on all of this, you’ll be able to weigh the benefits of all options against their drawbacks.
- Consider Your Options. Depending on the current ownership structure of your business, there may be many ways to handle the end of your management role. An outright sale? Structured buyout? Transfer of ownership within the family? Look at every available succession option – and their tax consequences – objectively, and make your decision only after careful analysis.
- Take Care of You and Yours First. Before planning any succession process or transition of ownership, make sure your retirement plan and life insurance coverage are adequate to handle your needs and to provide for your family. This is a primary reason to begin succession planning as early as possible, while it’s still possible to make changes. You’ll want to ensure that you and your family have the means to enjoy life after your role in the business you’ve so painstakingly built is over.
- Set Realistic Goals and Build a Transition Schedule. If an outright sale is your choice, for example, work to maximize the value of the business. If a current employee or family member will assume control, set a date for training to begin. Communicate clearly with everyone involved, and stay flexible. Keep your accounting firm and attorney in the loop. By allowing plenty of time for the process, you’ll be able to make adjustments as needed.
Slow and Steady Does It
Your successful business was not an overnight creation. It took years of expert leadership to grow and thrive.
An effective succession plan, too, takes time. Start planning today, and the business you built so carefully will be much more likely to prosper when you hand over the reins to your successor.