Succession planning can never happen too early if you own a business.
There are more than 15 million family businesses in the United States, ranging from giants like Wrigley and Marriott to the local corner grocery store. Yet, history tells us that less than one-third of family-owned companies will survive to the second generation.
One reason for the disheartening statistic may be that business owners tend to forget about succession planning. It’s often not a priority, and it definitely can be an emotional issue. Many owners just can’t imagine the business succeeding if they don’t continue running it, aren’t involved, or are too busy with day-to-day operations to adequately plan for someone else to take the reins. However, as more baby boomers approach retirement age, the time for succession planning is now. Tomorrow may bring a serious illness, disability, or even death. Having a well-thought-out plan is critical to the continuation of a business, particularly for a small, family-run operation.
Plan early
Developing a succession plan early will help to smooth the transition. You may think the plan won’t be implemented for years, but unexpected factors may change the timeline.
Bring in, outside experts
As you’ve grown the business, you have undoubtedly had some help. Hiring the right professionals – attorneys, accountants, financial advisors, and business intermediaries – will help you ensure you have the best possible succession plan when it is needed. Their expertise will be invaluable as you develop and plan while continuing your everyday tasks in running the company. They will look more objectively at the business and the goals you’ve set and help you ensure that everything is in place.
Involve family members in the planning process
Developing a succession plan and simply announcing it to the family will only create discontent when the plan is revealed. You may devise the same plan, but involving the family in the process will certainly create goodwill and support.
Train your successors and work with them
Take the time to work with the person you’ve selected to take over so they know and understand what it takes to run the business and keep it successful. Help your successor understand the big picture when running the entire operation, not just the duties they are currently handling.
Look at all the options
When putting together your financial plan, pay particular attention to three areas: management, ownership, and taxes. As you work on your succession plan, consider that management and ownership aren’t necessarily the same. You may look to one family member for the company’s management but transfer ownership of the firm equally to several family members.
Look carefully at the financial impact
Be sure to develop a financial plan for the overall succession plan. You don’t want your heirs hit by heavy gift taxes that they cannot bear. And no matter who takes over the business, be sure the valuation of the business is accurate.
Above all, be realistic
Of course, you want to turn the business over to your eldest child so they can follow in your footsteps. But it’s important to carefully consider whether they are the right person to take over the company’s operations. Consider another family member or someone else within the company if that person is the best qualified and has the business skills and desire to run the firm. Ultimately, selling to an outside party may be the best option. A business intermediary can guide you through that process, identifying potential buyers and advising you on options for structuring a transaction.
The time for succession planning is now. Don’t delay starting the planning process. It is one important way for you to ensure that you have the funds you will need in retirement while helping to ensure that your company will continue after you leave.
If you have a question about selling your business, send us an email at info@rogersonbusinessservices.com
This article is reprinted courtesy of the International Business Brokers Association® (IBBA). IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of business brokerage and mergers and acquisitions. IBBA® has 1,950 members worldwide, and its corporate headquarters is in Chicago, Illinois.
