Why Your Business Needs Succession Planning
Every business owner can tell you how they got into business. Far fewer can tell you how they plan to get out. You may be thinking, “Travis, I’ve still got 20 years before I retire. Can’t I plan later?” Well, succession planning is similar to retirement planning – you can never start too early. While succession planning is a big topic, let’s take a look at some of the basics you should know.
Why Succession Planning is Important
Succession planning often takes a backseat to the day-to-day of running your business, but the time for you to transition out of the business will come sooner than you think. Most often, this happens in one of two ways:
- Retirement: Everything around the business may be going well, but you’ve reached the age or point in life where you’re ready to take a step back and retire. In this case, who will take over to own and/or lead the company?
- The Unexpected: Life throws many curveballs, and there may be one that results in you or a business partner deciding it’s time step down. There are many situations that could lead one owner to leave the business before another, and it’s best to consider all scenarios that could come your way so you’re prepared ahead of time.
Many experts recommend you begin planning at least five years before your expected retirement or transition; however, it’s preferable to start even earlier, closer to 10 years out. Timing is important when it comes to getting the best value – and tax advantages – out of your sale.
Succession Planning Options
The succession plan you ultimately choose will depend on your and your business’s goals. If you want to keep the business in the family, you’ll need to decide who takes over after you and whether they’ll be ready when the time comes. Even if you’re more than 10 years away from retirement, consider how you’ll prepare them for the role – assuming one or more of your children want it. Will they be required to work at another company first? Or in different roles or departments within the business?
Another option, of course, is selling the business. But even that seemingly simple decision comes with multiple options. Will you sell to one employee? A few key employees? What about selling your company to an employee stock ownership plan (ESOP)?
Who Should You Involve?
To create the best succession plan for yourself and your business, you’ll want to involve a handful of professional advisors to help you through the process. This may include your tax advisor or CPA, attorneys and/or industry consultants. An industry consultant, especially, can help you narrow down your options and connect you with other experts to help you through the succession planning process.
Thinking about succession planning early helps you answer all these questions and more. Better yet, it puts your business in a better position to be successful in the short term, because you understand what needs to happen to reach your long term goals, and when the transition comes.