Succession Planning for Business Owners

 

You may have spent your life building your business.

It started as a dream, and after a lot of risk, sweat, reward, failure, and a lot of hard work, you have something of value. Your business is an asset and your livelihood. You may be ready to pass on the torch because you are ready to retire, you are in poor health, or you now have other dreams to pursue. Generally, you have two choices, or a mixture of two choices:

  • Sell all or part of your business
  • Delegate all or part of the management of your business

The ultimate answers to business succession planning are easy.

You can sell all or part of your business or you can delegate all or part of its management. You may even want to sell a part of your business and maintain primary management control. The hard part is deciding how much you want to let go or should let go. Generally, here are some reasons to either sell your business or to pass on its management to family, friends, partners, or buyers.

Reasons to Sell Your Business

  • High Sales Price

If there is a price you would take for your business, even if you are emotionally connected to it, your very first step must be to obtain a valuation of your business. What is it worth? At a certain price you will let go of the company you have built. There are three avenues: do-it-your-self by applying business valuation methods, solicit buyers to see what they will pay for it, or hire a firm to appraise your company.

  • No Foreseeable Longevity

It is axiomatic to say that you should sell your business now, sooner than later, if at some point in the future it is foreseeable that the day is going to come when your business will no longer be a going concern. This can happen for a number of reasons. Perhaps you are a specialist and there is simply no one who can replace you, even were they willing to be trained. It may also be the case that your goods or services will simply soon be replaced by new technology.

  • No One to Carry the Torch

It may be the case that you have no one available to replace you and continue the ongoing operation of your business. Your spouse does not want to because she wants to be with you when you are travelling, not doing your old job for you. Your partners may be thinking what you are thinking. They want out too because they have dreams to pursue and are also not getting any younger. The kids may have other ideas about what they want to do with their careers. They are simply not interested in staying in the family business that has been part of their lives since birth.

Reasons to Keep Your Business But Pass on Management Control

  • Your Business is Your Legacy

If it is the case that your business is a profitable going concern and likely to remain so for quite a long time, there is a good case for just delegating some or all of its daily management. This is especially the case if you have family, friends or partners who are capable and ready to start playing a bigger role. You can do this via a formal agreement or by taking a gradual approach, but a formal agreement is usually advised. Many owners have ended up in court with family or partners they trusted on a handshake deal, only to find when control of the company purse strings was relinquished, promises were broken.

Nevertheless, there are a number of things to consider when planning to pass on management or control of your business, and these include how much training do you need to provide before you exit entirely or partly from day-to-day affairs? How much compensation do you expect during the transition and thereafter? How much visibility or audit power do you want to maintain? Do you desire to always be in a position to step back into the business and take control of it should certain things happen? Perhaps you want to return should your business endure more than one unprofitable year? There are many things to consider, and every situation is different.

  • Your Business May Simply not Have any Available or Willing Buyers at this Time

In some cases, you may not be able to sell your business for a reasonable value. (Pat: i.e. you don’t want to fire sale or liquidate the business) It may be because your expertise is the main value your business provides. It may be that you are not in the right geography or that economic times are just not favorable for making a sale at this time. It may also be the case that you need to restructure your business, change the way it operates, or the way it is branded, before any buyers will be interested in getting involved or making an investment.