As a business owner, you are consistently planning for the future. But are you and your partners prepared for a time when you retire, pass away or are ready to sell? Succession planning is a lot like estate planning in that everyone knows it is important, but not everyone has gotten around to it.
Having a succession plan in place can save you and your business significant time and confusion and help ensure a smooth transition. Whether you plan to sell to your children or other relatives, employees or an outside party, a well-crafted succession plan can maximize the value you receive and minimize tax consequences. It can also encourage creditors if the buyers require financing to complete the deal and reassure employees that their jobs will continue after you leave.
Beginning the process
The first step is to know as much about your business as possible. You will need all current records and documents recording business legal agreements. You will also need a business valuation and determine what structure the sale should take — will you sell the business through stock or direct purchase of assets?
Be as detailed as possible
The plan should be as clear and anticipatory as possible. For example, you may prefer the transition to be gradual. You might want to stay on in an advisory role to the new executives after selling. If so, you should make that clear in the plan and include a timeline for each step of the transition. You can also clarify how you expect to be compensated, such as by cash or an equity interest in the business.
Whether you are actively looking to sell or just want peace of mind, a succession plan may be able to help.