Succession Planning and the Small Business Owner
According to the U.S. Small Business Administration, over 50 percent of all small-business owners are 50 or older. Think about that for a moment, that number means more than half of the 28 million small businesses in the United States are owned by individuals that either need to start thinking about or are getting ready to transition out.
A CNBC and Financial Planning Association survey discovered that 78 percent of small-business owners plan to sell their business to fund their retirements, yet fewer than 30 percent have actually written a detailed succession plan.
Solid succession planning should cover both the human-resources aspects of the transition and the financial details, especially if your goal is to generate the money you will live on during retirement. Additionally, it is also a good idea to have a succession plan in place if you plan to change careers and your goal is to sell the business to facilitate that.
Here are several items to keep in mind when you sit down with your attorney, accountant, or any planning advisor:
Your succession plan might be focused on keeping your business within the family, because they already know and understand your business. That experience and knowledge helps ensure continuity despite a change in leadership. Be sure to check with family members before you select a successor. They might not have the same desire and passion for the business as you do.
A common misconception is that the owner may think their kids want to take over their companies, when their children may have vastly different goals in life. Should one child want to stay in the business but the others do not, a discussion on division of equity must occur.
Outside of family, employees are often the next choice for small business owners when succession planning. While employee loyalty may not be as strong or prevalent as it was in the past, take the opportunity to analyze your company to see who has been there the longest, who you feel is most trustworthy, and who has been passionate about the business. Remember that you can also opt to put an employee in charge of the business, while your family retains ownership.
Change seldom happens overnight. Be sure that you have defined a period to encompass the transition, be it to new leadership or new ownership. Let your key employees know what that time frame is and keep your lines of communication with employees open and honest. Your goal is to make the change as smooth as possible and demonstrate your commitment to helping your employees adjust accordingly.
In addition to your family and employees, you also need to think about your clients/customers. Your business will undoubtedly have developed very strong relationships, regardless of the type of business you own. When my partner and I elected to close our business, we had several regular customers that were affected by our decision. Granted, my business was a small retail shop, but because we were a specialty business with a specific customer niche, we made sure to tell our customers about other retailers like us that they would be able to start visiting. If you are a B2B owner, you are going to want to visit your clients, or reach out to them personally.
Lastly, when it comes to discussing the financial piece, if you have been in business a long time, you likely have considerable equity in the business. You will have to consider this when deciding on your sales price. Selling the business also gives you options; you can either look at an outright, immediate purchase or work out a gradual, long-term sale contract with your buyer.
Eventually, as difficult as it might be to envision, the time will come to let go, leave that nice corner office and move on. Hanging on to “offer help” and trying to nursemaid your successor through the transition does not allow that person to grow and spread their own wings. If you have taken the time to create a solid succession plan, everything should be lined up for them to come in and you to walk out.