What Every Small Biz Owner Needs to Know About Succession Planning
If you’re building a small business, there will inevitably come a point when it’s time to start thinking about retirement. You know, when you can finally kick back, relax, and enjoy the fruits of all your hard work. But who will take over the company once you’re gone?
Will you sell it to the highest bidder? Transfer ownership to an employee? Or maybe pass it down to one of your children?
In any of these scenarios it’s important to have a well-thought-out succession plan in place. Unfortunately, most entrepreneurs are so busy and focused on the “now” they don’t take the time to slow down and prepare a proper exit plan for the future. If that sounds like you, here are a few things you should consider when it comes to succession planning for your small business.
Start Planning Now
Succession planning is not something you leave until the last minute. You have to put time into it. There are lots of little details involved in selling or transferring your business to a new owner and the earlier you start preparing the better off you’ll be.
Ideally you should start thinking about your succession plans at least five to 10 years ahead of time. At minimum, give yourself at least two to three years to make it work right.
Don’t Assume Your Kids Want Your Business
Many entrepreneurs assume their children will want to take over the family business. But the reality is they may have different plans for their careers and futures.
I have three sons of my own and so far none of them are showing any interest in being an accountant. That’s totally fine, but it means I’ll likely have to sell my business to someone else when I finally decide to escape down to Aruba and enjoy my retirement on a sunny beach.
Even if your kids do show an interest in taking over your company one day, they may not possess the necessary skills to be successful. If you own an engineering firm and your son or daughter isn’t an engineer, then guess what? They have some education and training to do before they’ll be ready to lead the business. Get them started now.
Your Business Must Be Able to Run Without You
Whether you’re transferring your business to your kids or selling it to a new owner, you have to understand they may have a different management style than you.
I have a client who spent 30 years building his business and recently decided to pass it down to his son. The father is an aggressive, take-charge type of leader (see: Attila the Hun), whereas his son tends towards a more coach-like, gentler, hands-off approach to managing his team.
The infrastructure set up for Attila the Hun will not serve the Coach. To ensure a smooth and successful transition they put a lot of work into setting the business up to support the change in management styles.
Keep this in mind when it comes to your own succession planning. You need to find a way to help facilitate and support the change in leadership when you decide to move on from your business.
These are just a few of the things you need to consider when it comes to planning a successful exit from your small business. Working with an experienced accountant will also help ensure you’re set up to sell or transfer your company in the most tax efficient and profitable manner as possible.
If you need help reviewing your current succession plan – or you don’t have one yet – give the Blue Sky team a call and we’d be happy to help get you on track: 289-466-5210