5 Succession Planning Tips for Business Owners
Written by: Kay Lynn Mayhue | President
Entrepreneurs pour their entire lives into building a successful business, devoting time, energy, and resources to establish a business in which they take great pride. Oftentimes, as entrepreneurs focus on the day-to-day, they overlook planning for the future — a future where they want to retire and move away from the business they’ve built. Over half of business owners have not considered their exit strategy, according to data from Wilmington Trust, leaving money on the table and potentially jeopardizing their legacy.
Our team works with business owners every day in designing a succession plan that fits their goals, establishing a strategy to protect their business legacy while safeguarding their financial future. These are our top succession planning tips for successful business owners:
Everything begins and ends with the culture:
No matter the ultimate design of your succession plan, finding the right culture fit will be the most pivotal factor in its success. Whether you select an internal or external partner, the individual or group must share your same values and philosophies. Find someone who mirrors your excitement and passion for the business and the culture you have established. This creates immediate synergies that will facilitate important discussions and ensure your team and clients are confident in the next phase of the business.
Define your succession end-goal:
Most businesses are not overnight success stories and rather take years of hard work and dedication to build and execute. Succession plans are the same way. There is no one-size-fits-all approach to succession planning, and the plan needs to be catered to the business and its culture, as well as individual and business goals. Before you dive into the details, it is important to consider your key priorities for the outcome. Is the goal to extract the most value for the business? Or to have the opportunity to remain involved? Safeguard the roles of your team? Or all of the above? These questions establish the parameters for your plan and help inform decisions to come.
Consider various succession options and opportunities:
There are various structures available to design a successful succession plan. The most common avenues include selecting an internal successor to assume responsibilities for the business or selling to an external party. Conducting an in-depth analysis of the internal organization allows you to take a critical look at potential successor candidates while assessing the value your current team adds to the overall business. There are certainly pros and cons to both options and engaging in an analysis exercise may help you determine the best path forward.
The financial components cannot be overlooked:
Your exit plan is often also your retirement plan, creating a windfall for you as the exiting owner. The importance of timing and structuring cannot be overstated. Taxes are a significant component of this discussion, and business owners currently face significant uncertainty around potential tax legislation changes, specifically related to capital gains taxes. Business owners need to consider when they are taking chips off the table and safeguarding the assets gained from a sale. Consulting with an expert Financial Advisor can help mitigate your overall risk.
The emotional implications of your plan are important, too:
The idea of walking away from the business you have built over the span of your career can be daunting. Connecting with others who have been in your position can help you understand what to expect, as well as gain clarity on the “why” behind your transition from the business. Taking time to properly assess the above considerations helps put your mind at ease, knowing you have the right person or team in place to carry on your legacy. However, the emotional implications don’t end with you as the owner. Oftentimes, your family will hold a unique perspective on the business and sale process. One important aspect we often encounter relates to the spouse. While you may view the process as a “loss,” they likely see the outcome as a significant gain, getting their spouse back! Selling your business is a long process and one that requires the right partners to see you through to the other side. We have worked closely with business owners to prepare them for the sale of their business and help manage the financial and emotional aspects of the process. Contact our team to learn more about how we support business owners throughout the succession planning process or find an advisor in your area.