Whether you own a startup or an established company, you likely focus on growing your business. That’s why it might be hard to think about the day you step down from your leadership role. But, the earlier you start business succession planning, the easier the transition will be.
A business succession plan helps you when you need or want to hand your business over to another person. The plan also prepares your business for unexpected financial or health hardships.
Business succession planning starts with deciding what you ultimately will do with your business. You need to find individuals to fill leadership positions or someone to buy your company. You also need to plan for your future, including your source of income and how you will spend your time.
Business succession planning options
Transitioning out of your business owner role is a slow process. Take your time to look at all your options. You have many options as you plan your exit. Here are just a few to get you started with your management succession plan:
Sell your company
You may want to include selling your business as part of your plan. To sell your company, find the dollar value of your business. To get a rough idea of the dollar value, subtract your expenses from your assets. Then, to be thorough, get an appraisal from a certified public accountant (CPA).
What is a CPA going to consider beyond traditional financial assets? While valuing your business, a CPA might address the associated risk of the items on your list of intangible assets. The CPA may also take into account the sustainability of a business from an environmental standpoint.
Consider selling your business as a gradual sale or a lease. This way, you receive a steady income after the sale. Asking for an outright sale may make it harder for you to find a buyer. An outright sale can be a financial burden on the buyer.
What is a partnership going to become in the big picture of your succession planning? Perhaps you have a partner who will continue acting as an owner. In that case, you can sell your share of the company to your partner.
Pass on ownership
You could pass ownership on to another person to continue the business. A potential successor could be a family member or an employee. Evaluate your successor in detail before you leave the business.
Develop a training program as part of your business succession plan. Let the successor learn the ins and outs of running your business. Some training focuses might include hiring, purchasing, sales, and accounting software management. Don’t be afraid to let go of the reins so your successor can get a grasp on their future responsibilities.
Family member successor
Family members who work for your company know your brand and operating methods. Your options to transfer ownership to a family member include doing an outright sale, a gift program, or a buy-sell agreement. There are different tax consequences for each option, so check with an accountant before you decide.
Though you might intend your business to go to a family member, first make sure they can run your company. Also, be sure the family member wants to take over the family business.
Employee successor
You could also consider an employee to run your business. Look for an employee who has years of experience in your company.
The employee should be trustworthy and passionate about the work you do. The employee should also be knowledgeable and capable of managing the business. If you choose an employee for your management succession plan, have a training program for them before you step down.
Prepare your retirement
A retirement plan is an essential part of business succession planning. A plan for retirement helps you set up your health insurance and financial security. Talk with your bank or financial planner about retirement options.
For example, you might choose to set up an IRA (Individual Retirement Account). What is an IRA? It is an investment account you use to store funds for retirement. There are many other retirement options available, such as a 401(k). A 401(k) plan lets you contribute large amounts of money as the employer and employee.
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