6 Tips for Getting Started With Succession Planning for Small Business Owners
Succession planning isn’t the most glamorous topic to think about—it certainly takes the wind out of the young! The end of your involvement in a business is a reality of starting one, so succession planning is something to start thinking about early on. Well begun is half done! Here are six things you need to know about succession planning for your small business:
- Recognize the necessity of succession.
Start a business with the knowledge that you won’t always be able to run it. Every business owner should anticipate when that time will come and figure out what might be possible at that time—whether that means selling or passing it on.
- Anticipate capital gains tax.
If you make a profit on your investment when you sell the business, you will have capital gains that will be subject to taxation. There are special exemptions for small business owners but you must meet certain criteria. It’s best to start discussing this with your accountant prior to moving on from your business.
- Figure out how to let go.
If you’ve decided to sell, understand that you can’t sell your business if it’s dependent on your presence to function. You need to find out what your employees can’t handle on their own and then sort out how to fix it before putting your business on the market.
I always suggest my clients take a long trip away—one they’ve always dreamed of—and designate one employee to make a note of everything they couldn’t manage without you. Once you’ve created systems for everything on that list, you’ll ensure the business is in optimal shape.
- Sort out any personal problems.
A new business owner doesn’t want to inherit problems they didn’t create and don’t have the means to solve. If there are any issues hanging around that are specific to you—such as outstanding loans to family members or asset ownership—make sure all of these are solved before you hand the business over.
- Build a good financial record.
A smart business person will want to see at least three years of good financial statements before taking on your company. That means you should be working with a skilled accountant at least five years before you plan to sell. They’ll help you go through your books, clean up financial irregularities, and create an efficient accounting system.
- Avoid sentimentality.
Recognize that what got your business to where it is may not be enough to take it to where it could be. The person who buys your business may reorient your business or the style in a way that suits their skill set, attitude, or the current market.
I always explain to my clients that selling a business is like selling a house: people don’t want to buy your home, they want to buy a structure and make it their home. And just like real estate, selling a business requires staging—making the business as attractive as possible. Blue Sky can help you do that – just give us a call: 289-466-5210.