Strategic Plan includes Tax, Finance, Banking, Ownership, Management
Some small businesses and family-owned enterprises fail after the business owner passes away or retires due to lack of transition planning for a successor. It is important to consider succession planning early on, and include it as part of the management business plan.
For business owners or entrepreneurs who have been putting off succession planning in their agenda, here are tips to get their succession plan process going and to ensure a smooth transition to their next generation of owner or managers.
Start Succession Planning Early
Five years in advance is good. Ten years in advance is better. Business advisors tell entrepreneurs to build an exit strategy right into their business plan. The point is that the earlier the succession planning, the more seamless the transition process is likely to be.
Consider the Situation Objectively and Plan Appropriately
The business situation should be thought out realistically. The business owner may want the first-born son to run the business, but does his son have the interest to do it and have the business skills? Then perhaps another family member more capable should be considered. If no one’s available in the immediate family, selling the business is an option. In any case, potential successors should be analyzed and examined as objectively as possible for the best of the business.
Get Rid of the Idea that Everyone Has to Receive Equal Share
This might be a great idea in theory, but may not be in the best interest of the business. Ownership and management are not necessarily one and the same. The situation should be examined objectively. It may be best that the entrepreneur transfer both management and ownership of the business to the chosen successor, and make other financial arrangements to benefit his or her children. Or it may be best and fair for the chosen successor to run the business to have a larger share of business ownership than family members not active in the business operations.
Involve Family or Relevant Playfers in Business Succession Planning Discussions
Making one’s own succession plan and announcing it is the surest way to start family conflicts. The entrepreneur can open up a dialogue among family members and pay close attention to personal feelings, ambitions and goals of everyone concerned.
Train successor/s and Work with Them
A business succession plan has a much better chance of success if the business owner works with the successor apparent for a year or two before handing over the business. Issues around finance are a big deal in terms of management, ownership, tax, and insurance concerns. It is an effort that will benefit the business.
Seek outside Advice
There are many professionals – financial advisors, accountants, lawyers – who can help put together a successful succession plan. They can develop and implement a custom succession strategy that help with financial issues like taxes, finance, banking, insurance, ownership, and management. They can provide advice and expertise throughout the entire succession process to clear the path to a smooth transition.
There is so much to be gained by a small/home based business that prepares for succession planning early on. It is a fact of life that one day business owners will retire or pass away. A successful succession plan, among other things and as necessary, involves family or relevant others, and seeks the advice of a professional financial advisor, a lawyer or an accountant.