A person can only live and work for so long. At some point, you will want to retire or move on to other ventures. This part is where business succession planning comes into play.
Succession planning is essential for any business owner, whether you have a large corporation or a small family business. It ensures that your business will continue to run smoothly after you are gone and that your legacy will continue to live on. However, not all business owners are aware of succession planning or how to do it.
According to a 2021 Society for Human Resource Management study, 56% of companies don’t have a succession plan. That means most businesses are unprepared for what will happen when the owner dies, retires, or becomes incapacitated. So, planning for your business succession now is essential to avoid being a part of that statistic. Here are some tips that will get you started on the right foot.
Determine the value of your business.
The first step in succession planning is determining your business’s value. It will give you an idea of what your business is worth and how much you need to plan for. There are a few ways to determine your business’s value, but hiring a professional appraiser is the best.
They will be able to give you an accurate valuation of your business based on its assets, liabilities, and earnings. This number will be crucial in succession planning because it will help you determine how much money you need to set aside and who will get what when uncertain times come.
And since you’re on the subject of money, it’s crucial to ensure you have a solid financial foundation for your business. Doing so will give you and your successors the best chance for success. Make sure to keep detailed records of your income and expenses and understand your business’s overall financial health. This way, you can make the transition much more manageable.
Consider your potential successors.
Of course, you can’t start succession planning without considering who will take over your business when you’re gone. This part is a crucial decision because it will determine the future of your business.
Ideally, you want to choose someone who shares your vision for the company and has the skills and experience to continue running it successfully. However, you also need to make sure they’re someone you can trust.
It’s also essential to have a backup plan in place if your first choice is unable or unwilling to take over. When you’re well-prepared, you can rest assured knowing that your business will be in good hands no matter what happens.
Put together a team of advisors.
Succession planning is a complex process, so it’s best to have a team of advisors to help you with the transition. This team should include professionals that can help you navigate the implications of succession planning. They can also offer valuable insights and advice on protecting your business and best position it for the future. Below are a few professionals you should consider adding to your team:
Your financial advisor can help you understand the economic conditions of your business and what you need to do to ensure its long-term success. They can also offer guidance on how to best structure your affairs to minimize taxes and maximize the value of your business.
A family law attorney can help you navigate the legal aspects of succession planning. They specialize in laws that focus on inheritances and successions and can offer guidance on transferring ownership of your business, drafting wills and trusts, and more.
With the right insurance in place, you can protect your business from financial setbacks that may occur during the succession process. Your agent can help you determine the type and amount of coverage you need to ensure your business is protected.
Create a written plan.
Once you’ve gathered all the information and advice you need, it’s time to start putting together a written plan. This document will outline your succession plan and serve as a roadmap for you and your successors.
Be sure to include all the crucial details, such as who will take over the business, how they will get compensated, what will happen to the company if something happens to you, and more. In doing so, everyone will be on the same page and knows what to expect.
Don’t forget to review and update your succession plan regularly. As your business grows and changes, so too will your succession plan. By studying and updating it regularly, you can ensure that it always meets the needs of your business.
Putting together a business succession plan may seem daunting, but it’s essential to ensure the future success of your business. Following the steps above, you can create a solid plan to protect your business and legacy. In such an uncertain world, having a plan in place will give you the peace of mind and security you need to continue running your business successfully.