Small business owners and entrepreneurs may not believe their little enterprise warrants a succession plan, but when people start asking basic transition questions regarding your eventual exit, the need for a succession plan becomes acutely necessary.
The sooner, the better
According to a survey commissioned by Northern Trust Institute, at least 30% of business owners don’t have a formal succession plan. Among those that have a plan, 50% are concerned that their successor may not be up to the job.
Succession planning is one of those concepts that seem so far down the road that there’s no point in worrying about it now. It might be easier to think of it as a living will. Any of us can become incapacitated, disabled or temporarily unable to work at any age. Or you might simply want to take a two-week vacation someday. It’s far better to have a plan and not need it than the alternative.
Consider it like any other investment. You want investments to steadily increase in value over time. If you learned that your portfolio was in danger of losing value, you would make moves to mitigate the risk. Your succession plan should be treated the same way.
If you plan to pass the business on to staff, a partner or family member
Like your succession plan itself, the sooner you identify a successor, the better. Ideally, you will want plenty of time for your successor to learn the ropes and nuances with your guidance.
Other points to consider are whether or not your successor should go out in the world and independently build their business expertise before being folded into the business or if they should be immersed in your business for as long as possible? Will there be a (potentially confusing) period of dual leadership or a clean handover? If the successor is a family member, are they willing and/or able to take the reins?
Ultimately, with careful planning and plenty of forewarning, you can arrange for minimum transition expenses or downtime and maximize tax savings for everyone.
If you plan to sell the business
It’s common for small business owners to have their identity so closely tied to the operation that they can’t fathom anyone else doing it as well – or at all. This mentality can be disastrous when it comes time to sell.
Prospective buyers want to feel like they can smoothly step in with little or no dip in revenue. If the business is objectively tied to the owner’s identity, it would behoove them to lay the groundwork for a smooth transition, whatever form that may take.
There’s no need for you to completely disconnect – after all, your personality may be a key reason for your success – but at least make arrangements on paper for how a seamless transition to an as yet anonymous buyer might look.
No one said it would be easy to walk away from something you may have nurtured from the beginning, but equally, you want to get maximum value for all your hard work when you decide to enter a well-earned retirement. That means looking at the sale from the buyer’s perspective and offering them maximum value as well.