In celebration of National Small Business Week May 4-8, we’ll be bringing you some of our favorite tips for starting or building your own business. #DreamSmallBiz
It’s a cold, hard fact of life that we all run out of time, eventually.
Following up on this morning’s blog post on creating an exit strategy for your small business, we wanted to dive a little deeper into the most common exit strategy implemented by businesses that are not looking for outside partners or investors: Transferring control of the business to another person, commonly referred to as succession planning.
There is no question that as a small business owner you have persevered and worked hard, dedicating your life to the success of your company. That being said, don’t you think that the business you put all of your energies into deserves the chance at having a happy ending? Have you considered the impact your death, disability, retirement, or even divorce could have on your small business?
As the owner of a small business, it is time for you to stop thinking of only what is happening now, and start focusing on what could happen in the future. You need to put your priorities into perspective and protect yourself and your business with a succession plan. A business succession plan will ensure that your business has a happy ending by remaining secure, regardless of what may happen in the future.
In particular, a succession plan allows your business to stand up to any challenges that may occur in your life. For instance, certain setbacks may be entirely beyond your control such as divorce, disability, and death. But with a business succession plan you have the chance to ensure that regardless of what may happen to you, your business will be protected.
Following are a few aspects you should to take into consideration when creating a business succession plan for your small business.
How to Begin Succession Planning
You need to make some choices before you can really begin your succession planning, so you must first think about your long term business objectives and ask yourself important questions such as:
- Will I sell my small business? If so, how can I make it as attractive as possible to a potential buyer?
- Should I transfer my business to one of my business associates or a family member? And what compensation would I need/want in exchange?
- Does my business have public stock potential?
Of course, business succession planning requires much more than simply deciding who you will be giving your business to in the event that you can no longer run your company, or simply wish to step away from it. Additionally, succession planning is about keeping your small business afloat and successful to ensure that your absence will not devastate your company.
Therefore, in order to maintain future control of your business, you will need to make choices concerning things such as:
- Ownership objectives
- Asset protection planning
- Taxation and transaction planning
- Estate planning
Keep in mind that due to the fact that every action you take with succession planning will result in a particular outcome — and you want to control that outcome as much as possible — you may want to seek the assistance of experienced experts when developing your plan.
Understand the Dollars and “Sense” of Business Succession Planning
Like any type of business preparation, your business succession plan needs to be orderly and handled carefully if you don’t want to suffer the consequences of financial losses – or worse – the loss of your small business. That being the case, you need to know exactly what you are dealing with, and how you can get the most out of your planning.
The one mistake you don’t want to make is to overlook your business finances. You can help keep your business secure by properly utilizing the following tools in your succession plan, before problems occur:
- Life insurance
- Disability insurance
Furthermore, you will find that with an orderly succession plan, you can avoid the possibility of your business having to be sold to pay off the estate tax, in the event of your or your partner’s death. It is no secret that estate taxes can claim up to 55% of an estate, which makes it no mystery why so many businesses fall into debt, become bankrupt, or are sold due to the death of the owner or partner.
Another aspect that needs to be considered is that clients are likely to take their business elsewhere after the owner or partner is deceased. However, with the proper succession plan, your business should be able to maintain its regular clients — or if not, it will be better equipped to survive the possible drop in revenues if a slow period should follow.
Know How to Write Your Happy Ending
Remember, when all is said and done, the outcome of your succession plan depends entirely on the choices you make now regarding the future of your small business. It is imperative that you take the time to make the best choices that will allow you to implement an effective a succession plan, which keeps you in control of the outcome and the eventual transfer of your company.
Ensuring the prosperity of your business future with a succession plan is how you will write your happy ending.
Learn more about Small Business Week at https://www.sba.gov/nsbw