Planning for the Success of Your Business Through Business Succession Planning
Hypothetical: Susan owns Susan’s Delights, LLC, a highly successful catering company. When she turned 60 she decided that she wanted to sell it. She had vague plans to sell the company previously when she turned 60, but hadn’t taken any steps to sell it. She immediately starts looking for a buyer. However, no one is interested in buying the business because Susan’s financials do not show a successful business. As a result, Susan gets discouraged, and simply closes down her business.
Business succession planning usually comes up in two different ways. First, as part of a business owner’s preplanning for distribution of their assets upon death. Second, when a business owner decides that it is time to retire. It is wise to start the process of business succession planning at least five years from when a business owner is looking to retire from the business or becoming less involved in the business. Planning ahead allows a business owner to focus solely on their business’ needs and revisit the succession plan and adjust it depending on current circumstances. Early planning increases the possibility that your business will remain successful in the hands of new owners and that your retirement will be free from financial worries relating to the change of ownership of your business.
It is not uncommon for children of business owners to not want to continue on his or her parent(s) business for the next generation. A lot of business owners falsely assume they do not need to consider business succession planning because they assume that their son or daughter will take over the business. It is important that you start thinking early of the best person(s) to take over ownership of your business. Even your most valuable employee may not have the skills to run a successful business anywhere but into the ground.
Once you have chosen your successor, you need to develop strategically a formal plan that will train and groom your successor to take over the company within a specific period of time. It is not uncommon for the training and grooming phase to occur over multiple years.
You will also need to determine a timetable in how and when ownership will be transferred to your successor. For certain owners, transferring 100% ownership within a short period of time with all money being paid up front works best for their circumstances. For other owners, the current owner retaining some ownership stake in the business is necessary. Sometimes, the transfer of ownership over multiple years works best. Business succession planning is not a one-size-fit all, but rather customized to meet the goals and circumstances of each business.
Business succession planning is essential to the well-being of a successful business. How a business is going to remain successful in the future happens through proper, strategic planning for the eventual change of ownership. Spangler and de Stefano, PLLP helps business owners determine your options with respect to business succession planning that will bring you peace of mind and strengthen the success of your business for generations to come.
The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legaladvice and should not be construed as legal advice.