Business owners, especially of private or closely-held businesses, tend to be independent-minded people, with a strong belief in their abilities – to run their own business, to build their own wealth – in short, to prosper their fortunes through their own determination.
However, even the most determined, independent business owner needs to plan for the future success of his/her business. A solid exit strategy, or succession plan, is essential to this goal. And, since your business may represent a substantial portion of your net worth, it is also an essential part of protecting your family’s future, in the event that something unexpected happens to impact your ability to carry the business forward.
In addition, your clients and employees need, and deserve, the protection that a sound succession plan affords in such circumstances.
A succession plan, therefore, provides a solid foundation to protect you, your family, your business, your employees, and your clients. This is true whether the unexpected occurs, or your life and business proceed smoothly.
Roughly 75% of privately or closely-held businesses do not have a succession plan.
What Do You Want in a Succession Plan?
Sooner or later, business owners must ask themselves what they want the future to hold, for themselves and their businesses. Sooner is better than later – it is never too early to plan, but you can put off planning until it is too late.
Treat your succession plan as seriously as you treat your business plan.
In the event you become unable to run your business,
• Who will take over for you? A partner? An outside third party?
• Will this initial transition in management be permanent (relatively speaking), or will you want someone else – an employee, a family member, to transition into your role in the future?
• If so, how and when is that transition to be effected?
Assuming the unexpected does not occur, five years down the road,
• What do you want your life to be like?
• What do you want your business to look like?
• What role, if any, do you want to play as your business moves forward?
• What do you want to have gained from your years of investment, personal and financial, in your business?
Do you want to:
1. Sell your business to an outside third party?
If so, do you want to bow out of management entirely, or remain involved?
If you want to sell your business in the next five years, now is the time to begin investigating and identifying potential buyers.
• Who are they?
• Have they made acquisitions in the past? If so,
• How do they go about this?
• How do they value the businesses they’ve acquired?
• Do they merge or integrate acquired businesses, or leave them to operate independently?
2. Sell your interest to co-owners or key employees?
If so, you may want to investigate a Buy/Sell Agreement, or establish an Employee Stock Ownership Plan (ESOP).
3. Transition power to a family member or members?
If so, is s/he, or are they, well prepared to take up the torch? Hands-on experience may not be sufficient to ensure good management skills. Make sure those who succeed you at running the business you’ve worked to hard to build are, in fact, prepared to succeed. Varied training and education can prove invaluable to young entrepreneurs as they step into new shoes and new roles.
Consult an Expert Advisor
A successful succession plan has many components – all variable, all depending on the individuals, and the individual business, concerned. Consulting a trusted business advisor, such as your financial advisor or CPA, can help ensure that your succession plan is tailored to your specific needs and goals, and covers all the many bases it needs to cover to protect the interests of all involved. Your trusted business advisor will also know that a succession plan, like any other plan, needs to be revisited and reviewed regularly. Circumstances change, and your plan may well need to change to meet them.
Every closely-held business should have a solid succession plan in place. Call us today – we can help you to construct a plan to protect yourself, your business, and your family, as well as your clients and employees.
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