There are only a few certainties in life: death, taxes, and the one thing few successful business owners take time to think about or want to think about, the day they will be faced with perhaps their biggest dilemma, “How do I exit and when?” In this regard, it is not unusual that few successful small business owners understand the importance of having a good succession plan or exit strategy.
The failure of business owners/ founders to plan effectively for succession can lead to an unfavorable and painful end result. If the business is a family-owned business, it may lead to a loss of family control or forced liquidation. These undesirable outcomes can be avoided if the business owner is willing to step back from the business operation and look into the future.
Once the business owner has made the initial decision to leave the business, there are some important considerations to keep in mind before making the final decision
Succession planning takes time
Building a successful business does not occur overnight, and equally so, exiting a business will take time in planning and execution of the exit strategy.
There are potential stakeholder barriers to the succession planning process
In every business enterprise there are a number of “interested parties” or stakeholders who have an interest in the success or failure of the business. These stakeholders include the owner’s spouse, family, employees, clients, and peers. Each may have a particular reason for the business owner not to leave the business. Therefore, it is important for the business owner to understand what their concerns are and that these concerns can be major factors in the final decision on leaving.
Succession planning occurs in stages
A good way to view succession planning is in stages. The initial stage is a period of anticipation and preparation. The second stage involves the actual handing over control and leadership. The final stage occurs after the transition has occurred and there is a period of adjustment and reflection by the business owner.Within each of these stages, the business owner is involved in the development of a number of important structured plans that may impact the nature and timing of the final exit strategy:
- A strategic business plan: This plan allows the business owner to consider the future financial strength and potential market growth of the business.
- A personal financial plan: Helps determine the current financial strength and future financial goals of the business owner.
- An estate plan: This plan helps the business owner to determine current and future tax consequences of selling the business.
The final steps in the succession planning process involve the actual implementation of the succession plan
Identifying and selecting successors
Determine the best qualified and best suited matches as your successor. Ideally, these chosen successors understand and concur with the business legacy you have built and will be committed to your employees and your clients.
Transitioning with the chosen successors
Establish a formal phased-in “passing of the torch” period in which the business owner introduces his successors to key employees and clients.
Handing over the keys!!
Prepare for the very emotional official change in ownership and leadership.
Monitoring the progress of the successors’ development
The periodic checking with the chosen successors to offer any assistance or advice you may give. These steps may take years to successfully implement. Therefore, it is important for any business owner,whether contemplating leaving his business or not, to start the succession planning process sooner than later. Tomorrow is not promised for anyone. Unplanned events can devastate hard-earned wealth and ruin the lives of others. Unfortunately, too many business owners foolishly delay too long the planning process.
The good news for the business owner is that there is experienced help available for planning an exit strategy or succession plan
Total Wealth Planning offers a proprietary,comprehensive Quiet Millionaire® CFO program that guides the business owner through these most important transitional stages of the succession planning process. To learn more, contact us for a no cost, no obligation introductory review meeting.