Many small-business owners know what it is like to take risks, work long hours and juggle multiple priorities. Even many successful ones drag their feet when it comes to succession planning, but there are steps they can take to cut down on succession headaches.
It's not hard to understand why. Succession planning can be complex, expensive, time-consuming and emotionally wrenching. But business owners who don't have a succession plan are putting a lot at risk if they hope to someday cash out at a fair price and/or ensure that their companies survive them.
Succession planning isn't a cookie-cutter process. The amount of time it takes is often dictated by the size of a business and the particular issues involved, as well as the approach of the advisor or other professional overseeing the process. Yet successful planning hinges on some of the following considerations:
1. Don't wait too long to begin
It can take as long as a year to put together a succession plan, and plans are often implemented over the course of many years. Succession planning can involve wrestling with emotionally difficult issues, such as deciding whether a relative or longtime employee is most qualified to eventually take over.
2. Shop around for the right advisor
Advisors may collaborate with other types of professionals, including lawyers, accountants and those who specialize in valuing businesses. Valuations prepared by objective third parties tend to be viewed more favorably by potential buyers, including internal successors, than those calculated by business owners themselves.
There are estate-planning issues, tax-related concerns and money-management considerations involved in succession planning. Nobody is an expert at all of those things.
3. Evaluate your own retirement savings and insurance.
As part of the succession planning process, business owners may want to consider whether they have sufficient retirement savings and life and disability insurance. Some owners opt to buy a "key" person insurance policy, which generally compensates a business for financial losses arising from the death or extended incapacity of a critical member of the company.
4. Discuss succession plans and update
A good succession plan should clearly delineate the individuals responsible for management, governance and ownership positions. The players involved in all three areas are likely to change over time, as will tax laws and other important matters. Therefore, succession plans should be revisited periodically and updated when necessary.
I hope this provides some ideas of the importance and necessity of business owners having a well developed Succession Plan. Please be sure to work proactively with key expert professional to develop a plan. The business may be at risk without a plan.
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