3 big questions about your business succession plans
As a business owner, you are focused on the growth of your business. Have you given your business succession or transition plan adequate attention? Our private client services team talks about the questions every business owner needs to be able to answer.
3 big questions about your business succession plans: What you need to know...in a nutshell
Planning for and managing through a business transition plan includes weighing many different options and many times, conflicting options. Understanding your goals is critical, including who you want to run your business when you're gone. The timing of your exit is also important. These decisions must be guided by facts and objectivity.
Having a good business succession plan will help to maximize the value of your business and will also help to transition your business to the next owner.
There are three main questions that you've got to answer in order to make sure that you have a good plan.
1) Is your business is ready for new ownership?
You need to begin by making sure your financials are in order. You need to make sure that your operating ratios are representative of how the business is functioning, and it's functioning at its peak performance. You need to make sure that there's complexity of your financials and such, where a potential buyer could understand them.
You really should consider sell side due diligence in order to get ready for the potential transaction and try to maximize the value for the business.
Industry and economic landscapes can constantly change. It's important that you monitor those landscapes and those changes and make sure that you're able to react to that with your business, so that you're not forced to do a transaction when the time is not right for you.
Internal dynamics can also make a difference when you're transitioning your business. You need to know who the next leaders are going to be for your business, and you need to be thinking about that 18 to 24 months before the event occurs, so that you have time to properly plan for it and make sure that those future leaders are ready, willing, and able to take over the business when the time is right.
2) Are you financially and emotionally ready to step away?
Accepting a realistic value for your company can be tough but critical. Many times this value is inflated by the business owner's emotions and accepting the lower value can be a bitter pill to swallow.
Business owners also underestimate how much their personal identities are tied to their professional lives. Be clear on your role with the company post-sale.
3) How will you preserve and enjoy the rewards of your efforts?
Your business is probably your most valuable asset. Understanding the impact of a transition of your business to your finances is critical. Wealth planning, tax planning, understanding the impact to your lifestyle are all very important aspects of a transition, so the sooner that you start planning for that and understanding the impact, the better.