7 Steps For Succession Planning
- May 1, 2022
Business owners tend to focus on building their businesses. They generally don’t think about—or want to think about—scaling back. According to the Small Business Administration, more than half of all small-business owners are age 50 or older. Sooner or later, many of these business owners will have to give the reins over to someone else.
Having a comprehensive succession plan, aligned with the company’s goals, is extremely important. Many business owners have some idea of when they will retire. But what of those owners who suddenly pass away or become incapacitated? Who will lead the business?
Under normal circumstances, it is prudent for a business owner to begin succession planning 15 years before he or she plans to retire. Here are the steps to take in advance to help ensure a smooth succession:
1. Have an Accredited Valuation – Whether the intent is to sell the business or turn it over to a family member, have it valued by an independent professional—someone who is accredited in business valuation (ABV).
2. Choose a Successor – This may be a family member, trusted employee, or some outside party. Be honest in your evaluation of each candidate’s ability to successfully run the business. Firms that specialize in this can help with the selection process.
3. Establish an Exit Strategy – A great financial exit strategy should cover both your retirement and insurance needs and minimize tax exposure.
4. Train Your Successor – Make sure they have a working knowledge of the key areas of the business.
5. Let Your Successors Take Ownership – Give successors the freedom to do what they were trained to do. Don’t override their decisions; let them do what they feel is best for the company.
6. Give Yourself an Avenue to Stay Involved – If the thought of a quick, total separation is too difficult, ease out of the business by working part-time or as a consultant.
7. Relax – Succession planning can be difficult for many, especially after years of building. However, if you’ve handled the process correctly, you’ll find it easier to sit back and enjoy the fruits of your labor.
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Timothy F. O'Rourke
Tim O’Rourke is a Partner in the firm’s Private Client Services Group with over 25 years of experience consulting with clients regarding corporate and individual income tax planning, accounting and financial statement preparation.
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