How to Ensure Your Business Will Thrive Without You
Developing and implementing a succession plan can provide several benefits to CEOS and partners.
According to the U.S Small Business Administration, Office of Advocacy, based on 2013 U.S. Census Bureau data, more than 51 percent of small business owners are ages 50 and older. These statistics show that a large percentage of business owners are reaching a point in their lives when they need to consider establishing a transition plan for their business. CNBC and the Financial Planning Association found that while 78 percent of small-business owners intend to sell their businesses to fund their retirements, fewer than 30 percent have a written succession plan.
The key to a successful transition is to build a solid foundation from the beginning and, contrary to popular belief, design your company not to depend on you. You and your company should work towards implementing systems that are seamless so a successor can step into the role and adjust with ease. Succession planning is an integral part of strategic business planning and often takes years to perfect, so it is important to develop a plan early, and revise as needed.
There are several points to keep in mind when you sit down with your professional advisors to draft your succession plan.
If your goal is to keep your business within your family, you should consult with family members before designating them as beneficiaries to ensure that they have the same desire for the business. Having a family member replace you as opposed to a current or new employee could ensure continuity despite a change in leadership because more than likely they know your business and brand, but if they are not familiar with day-to-day operations, it is important that they are provided with the necessary tools to succeed.
Sometimes it is best to look within your company for someone you can trust, who shows extraordinary talent and is passionate about your business. You could sell your business to that employee as part of your succession plan, or retain family ownership while allowing the employee to run the business.
The true “value” of a company is the price at which its ownership would transfer from a willing seller to a willing buyer. The equity and residual goodwill in small business owners’ companies is a valuable asset. If your company has been in business for an extended period of time, there may be substantial equity in the business and its assets, and this will need to be reflected in the sale price. As opposed to a straight sale, you could structure the transition as a gradual sale. Both options can provide you with steady income, depending on the structure. Different sale methods have different tax consequences, so it is important to discuss your options with an legal and/or tax professional.
The Small Business Administration’s 7(a) loan program can help a qualified buyer finance the purchase of a business over as many as 10 years.
Hire the Right People
It is important to surround yourself with a team of competent advisors to assist you in fine-tuning your goals and objectives. You should consider consulting a business, tax or estate planning attorney, an accountant and a financial planner. After choosing a successor, you should include the successor in the drafting conversation as needed, along with experienced professionals who understand the challenges of succession planning. Such professions can provide the following assistance:
1. A financial advisor with experience will be able to assist you in establishing your goals and objectives and plotting a strategy to meet your needs.
2. An attorney, ideally someone who practices business law or estate planning, will provide proper legal structure for the plan.
3. A Certified Public Accountant can give you factual numbers, prepare any necessary analysis/valuation. A CPA will be able to analyze the business finances to help you see the true financial health of your business.
Having professional advisors and an outside perspective will allow you to set clear and objective goals. You should work with your team periodically to refine the documents as your goals and objectives change.
A succession plan is the only way to attempt to ensure that your business will survive when circumstances change. Write your succession plan long before you need it, so when the time comes to act, the terms are already established and agreement upon.