If you’re wondering what will happen to your small business after your death, now is a good time to begin the process of “succession planning.”
Surveys show that while most small-business owners plan to sell their businesses to fund their retirement, few have written succession plans. Further, many of these businesses are operated in such a way that it will be difficult, if not impossible, to find a purchaser.
While you might think succession planning is a concern only for older business owners, it’s important for younger business owners to create succession plans as well. What if one of the business principals is killed in a car accident? What if a key person is diagnosed with cancer?
Without a good succession plan, these types of incidents can be devastating to a business. You should, therefore, schedule some time to meet with the other owners and leaders of your company to begin discussing a succession plan.
The first step is thoroughly analyzing the business, since you’ll need to have a good grasp of all aspects of the business before deciding how best to handle its future.
If you’re planning to sell (or give) the company to family members or employees, it’s important to have frank discussions with them to see if they’re interested. If appropriate, they should be trained for their eventual roles as early as possible.
Once you’ve created a solid succession plan, you should also consider a back-up plan. For instance, the employee you’re counting on may take a job with another company, or the family member you identified may become seriously ill or decide to work for somebody else.
If your plan or back-up plan is to sell the company to an outsider, you’ll need to determine whether that’s feasible, and, if not, determine how you can modify your business practices to make it feasible.
Consider these questions when determining whether your business is saleable:
Does your business have a strong history of profits?
Is it in an attractive industry?
Is its location convenient to potential buyers?
Are your business’s assets and inventory in good condition?
Do you have good relationships with suppliers?
Does your business have a solid customer base?
Is your business dependent on the skills of a particular person or is it transferable?
Does the business have a healthy balance sheet?
SCORE, a network of volunteer business mentors, offers a free guide to succession planning for small-business owners.
Once you’ve worked out some of the basics of your succession plan, you’ll usually need input from multiple professionals, including tax advisers, lawyers, and business consultants, to make sure there isn’t a better way of handling the transaction and to finalize the arrangement.
Please feel free to contact us if you need help planning for the succession of your business.
Photo by Riccardo Annandale on Unsplash
