Thinking about your options to exit? You’ll know by now we’re big fans of early exit planning. But selling the business isn’t your only option – you could consider passing your business on to family or trusted partners when the time comes to leave.
It’s a great idea if you do it right. To help, we’ve got some tips on what a good succession plan needs.
The key here is to be aware of what’s best for you, your family and your business. You won’t please everyone, but if you want your business to succeed after you’ve handed over the reins, you’ll need to be objective. Your family members or business partners may need to develop the skills necessary to be at the helm. They need to want to take responsibility for the business. Getting them to buy the business from you is a great test of their commitment.
In some circumstances it can be better for your family if you sell the business and help them to develop their own businesses, built on their own passions. This can be hard to accept, but it is important to ask yourself, and them, the question.
Splitting ownership as you pass your business from you to two or more children can be full of challenges and problems in the future. If you choose to equally split the business but one child is responsible for the future running of the business, this needs careful consideration.
You’ve worked hard to build your business to create a future for your family, so the last thing you want to see is that passing it on to the family causes problems once you have retired.
In this case, start planning early so your successors have time to develop their skills, and you have the opportunity to impart the knowledge you’ve spent years building up. Doing so may be the difference between the future success or failure of your business.
Starting well before your exit, make sure you communicate with key people about your succession plans. Explain what you plan to do, including whom you plan to put in charge when the time comes, as well as other assigned roles people may be taking on.
It’s imperative to make your plans known early on, even if doing amy cause tension – especially if doing so will cause some tension, in fact – so that this is settled before your exit.
If you plan ahead, you can transfer ownership to your chosen successors gradually over a period of time. Planning ahead also lets you make changes as you need to, such as if one of your children decides that he or she doesn’t want to be in the business, or if there’s a change in government tax policies.
Avail of any and all professional advice you need at this stage, whether financial, legal or otherwise. This can help ward off avoidable sticking points, e.g. reducing any tax implications for your successors, or any potential legal complications between family.
Attention to Staff Loyalty
Do you have loyal staff and employees that have made significant contributions to your company? If so, make sure you reward that loyalty. Not only is it bad form to overlook employees or officers that have made significant contributions to your success, but doing so could cause trouble.
You want these employees to continue their loyal service with your successors, not leave and potentially take your best client relationships with them.
Succession and Sellability
Even if you won’t technically be “selling” your business because you’ll be passing it on, you still need to leave a sellable business behind, one that will function smoothly and be profitable without you, and continue the legacy you have created.
Never depend on one vendor or client to pull in the majority of your company’s profits, or on one key employee to run the business in your absence. Diversify and make sure that you’ve got a solid client base and adaptable management structure in place before you pass your business on, and you can be confident you are passing down something of real value.