There is plenty to be learned about developing effective business plans and other tasks that must be performed early in the startup phase of any company. But, even though nearly 80 percent of small business owners assume that they will fund their retirements by selling their businesses, fewer than 30 percent of them have developed a formal plan that determines what will happen when they stop owning their businesses.
Whether you are considering your own mortality, planning to retire or if there’s a chance that you might want to want to move on to other things in the future, you need to decide if you want your business to live on. It’s never too soon for small business owners to develop a succession plan.
Start by Answering Some Basic Questions
Succession planning involves a number of complex issues. Well-considered answers to the following questions can provide a roadmap that identifies the issues that you have to address — assuming that a succession plan is even feasible.
- Can your business survive you? First, you need to decide if a succession plan even makes sense. For example, as a writer, I am pretty much synonymous with my business. No other writers would have reason to officially take over my business. If you actually are the business like I am, this STARTicle probably does not apply to you. However, you may want to contact a good estate planning attorney to address issues pertaining to inheritance of business assets and such.
- Are you the only owner? If so, you have total control over the succession planning process. If you have business partners, however, they need to sign off on all decisions based on the provisions in the partnership agreement.
- Do you have a successor in mind? Do you truly have a family business? Maybe your family members don’t share your interest in plumbing, or they lack the skills needed to run the business. Partnerships might want to retain ownership within their members. At the very least, each partner will want the right to accept or reject proposed new partners.
- Have you thought about the financial aspects? Succession planning is not necessarily an all-or-nothing proposition. You might want a clean break from the business, which probably would involve selling it outright for cash. But, if you want to keep some equity you would need to negotiate a percentage of retained ownership into the deal, which may or may not include voting rights and other benefits. Of course, the finances might look very different in the event of your demise. Naturally, your partnership needs to define these issues equitably as well.
- Will your business need a transition period? Don’t figure that you can just take care of the financials and then hand over the keys. Whether a single successor will take over operations, or even if existing partners are absorbing your shares, they still need to know what you do, how you do it and the resources that help. Make sure that you have a clear understanding of the length of a transition time period — and how you will be compensated for your time.
Expert Assistance is Vital When Creating a Sensible Succession Plan
Succession planning is typically a process that involves in-depth experience within a variety of disciplines, with the most notable being finance and the law. You may be well-prepared to run your business knowledgeably, but you really need experts who can dig into the weeds of your business before creating a plan that is legal, fiscally-sound and fair for everyone involved.
At the very least, you need to hire the following professionals:
- Business succession planning attorney: The attorney you hire needs to plan for and coordinate both personal and business factors of your succession plan. They look out for your personal best interests (often considering personal estate planning) as well as those of the business based on CPA assessments and federal and state laws. In many cases, hiring the attorney automatically brings CPAs, financial planners, banks and many other resources to the mix.
- Certified Public Account (CPA): Of course, CPAs know how to come up with accurate numbers that can help you assess the true value of the business assets and liabilities. Just as important, however, they read the numbers like other people would read romance novels. They know where your business has been, where it’s going in the future and the inevitable twists and turns that might complicate the underlying issues of your succession plan.
Just as important, understand that developing a succession plan is not a set-it-and-forget-it proposition. Every business changes through the years, particularly very young ones. Expect to bring the professionals back periodically to re-assess and adjust the details.
It’s Never too Early to Plan for the End
When it comes to succession planning, the old expression, expect the best, but plan for the worst really fits. People who value their businesses should not wait until they need to pass it on to someone else before making a cohesive plan to do so. This concept is equally true whether a succession plan needs to be implemented due to a sudden desire to move to the Bahamas or if a sudden tragic event leads to the need for a transfer of ownership.
The Small Business Administration offers a number of informative articles about closing down your business. You may prefer to focus on all the exciting things about opening your doors. But, if you want to make sure that your business lives on — and that your interests are treated fairly in the process — then succession planning is an absolute requirement.
Get started right now while you’re thinking about it, and don’t forget to revisit your succession plan regularly throughout your business’ life cycle.