8 Tips for Succession Planning
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 to in advance to help ensure a smooth succession:
- 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).
- 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.
- Establish a financial exit strategy to cover the owners’ retirement and insurance needs and that minimizes tax exposure.
- Train the successor. Make sure he/she has a working knowledge of the key areas of the business.
- Establish a timeline of succession.
- Give successors the freedom to do what they were trained for. Don’t override their decisions; let them do what they feel is best for the company.
- If the thought of a quick, total separation is too difficult, ease out of the business by working part-time or as a consultant.
- Relax and enjoy the fruits of your labor.