21 Apr

Do You Have a Succession Plan for Your Business?

According to the U.S. Small Business Administration more than half of all small-business owners are age 50 or, older do not have a succession plan for their business. Planning for your ultimate departure from your business, the succession plan for your business is not something you do a few months before you decide to retire or leave that business.  The earlier you begin the better, no matter what your age.

A survey by 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. That’s not a recipe for success.

Selling is not your only option and some may actually prefer not to or simply have a business that cannot be sold.  Some of these options are:

  • Hiring someone to run your business and you “Consult” to the business as the prior owner for a fee.
  • Hiring someone to run the business and you are paid from profits
Developing Your Succession Plan

Regardless of whether or not you choose to sell or stay, the steps you should take NOW to plan for your eventual departure are:

  • Involve your Attorney, Banker, and Accountant. This should be done several years before your planned exit from the business
  • If you are not already working with one, find a Business Consultant to help you improve your business performance to its best possible level. This too should be done several years before your planned exit from the business.
  • If you are passing the business on to a family member choose now. Given the emotional aspects of choosing among family members, your Business Consultant can help.
  • If considering hiring a nonfamily member to operate your business work with your Consultant to develop a list of the necessary Knowledge, Skills, and Abilities this person must have to operate your business.
  • Develop a formal training program for your family member or successor if needed.
  • Establish a timetable for the handoff of your business to the family member or external hire.
  • Work with your Attorney and Accountant to plan your own retirement. Your personal financial advisor, if you have one, should be a part of this planning.
  • Execute your plan.

 

If you have done all of the steps and afforded yourself enough time to plan it right, the execution of the plan could be as simple as handing over the keys to the business.  Having a good well-prepared plan is critical to this final step.

It is not uncommon for Business Owners to assume their children will take over the business when they retire.  It is also not uncommon for the Business owner to discover their children want nothing to do with the business.  Or, the children may not have the right Knowledge, Skills or Abilities to take on the business.  It is important for the Owner to consider several things when considering a family member as a successor. These are:

Don’t assume – be prepared for your children to say no.  Start the conversation early to help plan for your transition.

Be prepared to make a selection – You may have to disappoint a family member who thought they would take over the business but they clearly do not have the KSA’s to do so.  You have to have that conversation. You may be forced to consider someone outside the family.

No emotions – You know your family members best.  You understand who has the best motivation, vision and work ethic to successfully run your business after you leave.

Test Drive – By planning early you can allow family members to lead different parts of your business.  This allows both of you to test drive the new role and see if it is a good fit. As time goes by you can expand their responsibilities.  This is also a good training method for your successor.

Make the decision and communicate it – When you are ready choose.  Then ensure that everyone on your business team is aware of and fully understands your decision.  Understand that if you have multiple family members those not selected may become emotional.  This will be a difficult time but stick to your decision.

Work with your successor – By working with your successor prior to your departure you can ensure a smooth and seamless transition.  This helps them be successful and also helps your business.

 

Succession Planning is not something to be taken lightly nor should it be a quick decision.  The more time you devote to the planning the greater the chance of survival for your business.  Do not try and do this on your own.  Enlist the help of experts to ensure that everything goes as you wish so that you can enjoy life after you depart the business.  You worked hard for this and you’ve earned it.