Business Succession Planning
Many business owners are so focused on the day to day success of their business that they fail to plan for succession. Planning ahead can help make the transfer of ownership smooth and successful.
So when is the right time to plan for succession? Ideally, before you start the business, because the choice of business entity can have an effect upon the method of transfer and can also have tax implications. Realistically, planning for succession should begin as soon as the owner recognizes that he or she will want the business to continue on after his or her retirement.
Many factors have to be taken into account when planning for business succession. First, will the business have value without the owner? Some businesses are so dependent on the personal effort or reputation of the owner that they may not have a significant value beyond the owner's work product. Most businesses, however, have equipment, inventory, employees, and a loyal customer base that create value for the next owner .
Second, who are the likely business successors? Sometimes the new owner is right there in front of you -- a co-owner, employee, or family member. Other times a competitor may be a potential buyer. Sometimes it is an investor you don't yet know. Identifying your potential market is an important step.
What are the economic and tax implications of the transfer? Will you be able to afford to transfer your ownership interest in the business and live off of the savings and retirement benefits that you have accumulated? Or, will you need to continue to draw a salary from the business? How much money will you have left after you pay income taxes? These and other related questions must be answered before any successful transition.
When do you want to transfer the business? Some people want to retire early enough to enjoy a long and healthy period of retirement. Other people want to control the business as long as they live. If you are not realistic about planning for a smooth transition to new leadership, problems after may arise transfer.
These are some basic questions to address before any of the actual details of the transfer, such as price, closing date, payment method and documentation can begin to be addressed. These decisions cannot be made quickly or in isolation.
A successful transition of a business involves many months of planning and no small amount of anxiety. The transferring owner will almost certainly need the input of their immediate family and will want to assemble a professional team to assist in the many technical details. That team will have at its core an accountant and an experienced business attorney. Other professionals are often involved, including the commercial lender, insurance agent and a business broker.