You’ve spent a lifetime building your business. What
happens when you’re ready to move on to the next stage in your
life? What steps do you take to pass on a business?
There are four primary options:
Pass the business to a family member
Hire a professional business manager and become an
absentee owner
Sell to an outside source – which could include employees
Close the doors after harvesting the value and worth of the business
Many owners avoid planning for succession of a business. They would rather
endure a root canal without Novocain than think about leaving. The succession of a
business should be explored well before a change is to be made. Some business owners
delay serious succession planning until they only have a year or two left at the helm.
Actually, succession decisions should be considered much sooner. Is your dream to have
your family continue the business or sell it for substantial profit? Paying the least amount
of tax possible goes without saying, but what will you get from your business when you
walk away?
There are many questions, but few easy answers. What are your options? Who in
your family is a good business successor? Do you have key employees who should be
considered for ownership? How long should you continue running the business as the
primary owner?
While planning for business succession may seem like planning for your funeral,
it makes good business sense to address these issues upfront as part of a sound business
plan. Here are a few guidelines to help you plan for the succession of your business:
Think of succession as an ongoing process. It takes time, thought and effort to
develop a working plan.
Know the components of a succession plan – discovery of choices, business facts,
time to execute, tax and business planning, and successful transfer of ownership.
Start planning today. Many elements of a successful business succession plan will
take time to fully implement.
Find trusted business advisors. Include an experienced attorney, CPA, and banker or
business broker. Discuss your succession plan with these advisors.
Keep the business strong and growing. It is easier for the business to go forward
under new management when the business is vibrant rather than constrained.
Be accountable for every business outcome. As the business owner, you singlehandedly
have more to do with the daily output of your business than anyone else in
the company.
Develop and formalize operating systems for daily business items and procedures for
decision-making.
Develop business goals and strategies. Hold individual stakeholders accountable.
Teach management decision-making techniques. Once decisions have been made,
management must support those decisions.
Hold yourself and key management in the business to high standards the business
emulates.
Invest in education, training, and industry trade organizations. This assures your
business is at the forefront of your industry and not playing catch-up.
Hold board of director meetings, even if you are not a corporation. Any business can
have a board, hold meetings and formalize the big picture of the business. Not only is
this good for you, but it helps prepare future leaders and managers.
Formalize business and personal documents such as buy-sell agreements, corporate or
business documents, and wills and trusts.
Communicate your desires regarding your business to your family. Do it with all
members of the family in one meeting. This way every member hears your wishes
for the business at the same time. Discuss with your family the reasons the division
of your estate is fair and equitable, maybe not even and exact, but fair in your eyes.
Prepare your successor to take the helm. The successor needs to work through issues
and challenges while you are still active in the business. This includes running the
business as well as being trained in management and leadership.
Be open to other succession choices. You may have a strong desire to pass your
business onto family, but don’t overlook other good business choices from selling the
business or harvesting the growth and downsizing the business so the successor has a
manageable business to take over.
Consider the tax implications of your business choices and the amount of money
available to you for retirement and to your successors to operate the business.
Consider what you want to do with the rest of your life. Most successful business
owners must transfer their energy and drive into something – church, family, other
investments or hobbies. You are going to have many waking hours in which to
decide where to transfer your energy.
Successful business succession is a process. It is more than hiring a business
broker, talking to your CPA or attorney about business agreements, or buying a life
insurance policy. It is the strategic process of developing your business team,
maintaining the strength and quality of your business, weighing the options of
transferring the business to family, others or selling the business, keeping customers and
employees, and working through each and every challenge this process throws in your
direction. This process is not easy, but you will have a stronger more profitable business
with many options besides just locking your door after years of hard work.
