It happens to all of us whether we own a business or not. At some point, our working life stops. For business owners that bring on additional challenges. Specifically, what will happen to your business when the inevitable occurs. Generally, this involves one of the following:
- Selling Your Business to a third party
- Retaining your business and hire someone to run it for you
- Shutting your business down
- Pass it on in some way to a family member or partner.
According to the Exit Planning Institute only 20% of businesses that go to market ever sell. That leaves the majorty of business owners with only three options. Realistically only two if they don’t want the years of hard work they put into their business to be wasted by closing the business. Regardless of what you decide one thing is certain, you have to include thinking of yourself in this process as well as your business. Interestingly enough the two are closely tied together. Let us look at the process…
As with anything worth doing right you start out by making a plan. In business, we call this a succession plan. While these can involve leadership and business it is important to be a thorough as possible in developing the plan. There is no off the shelf solution for this and your plan must be as unique as your business. Finding a quality helper in this will not only involve multiple people, it isn’t something you can expect to get free or from a volunteer service. You will have to work with:
A Business Advisor – A Professional skilled in developing business value. Ideally, this is a person who can help train and educate chosen successors, improve the value and performance of your business while developing your plan and help you execute the strategy of succession with the following:
Your Attorney – You needed one when you set up your business and you’ll need one now. A variety of legal issues will arise that will need to be handled by your attorney. Don’t try and do this alone.
Your Accountant – Ultimately taxes will be a factor in whatever you decide. Having your accountant involved in how you proceed from a financial reporting aspect because of those taxes, is critical.
Others – Possibly your Banker, Insurance Agent or others who’s service addresses the specific value of your business and you.
Succession planning is not something you wait to do. Ideally, you start it the day you start your business. That rarely happens. A smart and prudent owner will begin their succession planning at least 7-10 years before they are thinking of leaving the business. If you plan on leaving within the next year it isn’t too late, but your plans may change. Regardless, now is the time to start.
Commonly one of the following occurs with a business; You sell it, or you keep it and hire someone to run it while you live off of the profits. This is where your business Advisor, Coach, or Consultant can be of significant value to you. Regardless of the choice maximizing the performance, productivity, and profitability will ultimately put more money in your pocket. These individuals, skilled in all aspects of the management of a business, are ideally suited to performing this step in your succession planning. This is something my firm excels at. Our entire focus is to maximize the profitability of a small business by ensuring that the education, tools, training, and coaching we offer provides the desired results. Everything we do is customized and targeted not only for each business but for small business in general.
Passing the business on to a family member can also present challenges that a Business Advisor, Consultant, or Coach can address. Ensuring that the Knowledge, Skills, and Abilities are present in the family member, and providing training, tools, and education for them wherever they are not, helps ensure that the business continues to grow and prosper. This has the benefit of fulfilling the dreams of many founders of small businesses, to provide something for the family after they are gone. Because few family owned businesses survive past the second generation ensuring that the proper skills are present will help ensure the continued success of the business. You will need someone who can teach and not just tell someone what to do.
No matter what you decide to do, what course you choose to take. Many things will have to be done to ensure that the inevitable happens as smoothly as possible. Some things you will need to consider and the people above can help you with are:
- Issues of family perception and conflict during the process
- Who will actually lead the business
- How will wealth distribution be managed
- Is the current legal structure the best structure for your ongoing business
And much more. The bottom line is that this is not a spur of the moment decision and you cannot do it yourself. Plan wisely and make the inevitable as easy as possible. If you need help, ask us, it is what we do.