Small business owners are well advised to have a business succession plan.
Small business owners are mere mortals like the rest of us. As a result, they may become disabled, incapacitated or die unexpectedly. Additionally, many business owners want to enjoy the fruits of their labors in retirement. Unfortunately, many business owners neglect creating a business succession plan ahead of time to address these events.
Business succession planning is an important part of estate planning for small business owners. A solid plan can ensure that the business carries on uninterrupted if something should happen to the owner or if he or she retires. In addition, a plan can ensure that the business retains its competitive edge during a time of transition, as an unexpected departure of an owner can cause disorder and chaos within the organization, which competitors could use to their advantage.
Keeping the transition steady
In order to ensure that the change in ownership does not cause problems for the business, it is vital that the business owner(s) start the business succession planning process as early as possible. An early start can give the owner(s) plenty of time to determine the best candidate(s) to fill the role. According to business experts, owners should begin the process at least five years before the expected transition. Obviously, one cannot plan for one's death, so all business owners should start the process right away, even if a transition is not imminent.
When selecting the person(s) to act as successor, it is important for the owner to select the candidate according to the needs of the business. When considering candidates, it is important to not automatically assume that a family member or high-performing employee would be the best fit for the job. Instead, it is advisable to choose someone that has a plan for the future of the company and the drive to adapt the business to the anticipated changes in the marketplace, rather than someone who would simply duplicate the current owner's policies.
Once the decision-making process for the new successor has been made, experts recommend informing company officers and employees as early as possible. This allows the successor to learn about the business' finances, operations and other important knowledge. In addition, this gives the owner and others the opportunity to assess the successor's performance and whether he or she is a good fit (and make changes if needed).
If selling the business is the goal, it is important for the owner have an accurate value of their business. Many people make the mistake of valuing their business according to what similar businesses fetched at recent sales. However, since a sale price is comprised of many factors, doing this can cause the owner to significantly overvalue or undervalue his or her business. A proper business succession plan includes a valuation of the business by a qualified professional as well as the tax consequences of selling the business, which can give the owner a realistic idea of what will be left over after the sale.
If you are a business owner and have not yet created a succession plan, it is advisable to consult with an experienced estate planning attorney as soon as possible. An attorney can listen to your situation and help you craft a plan that will help you achieve your goals.