What Is A Succession Plan & Why Does Your Business Need One?
For so many blue-collar business owners, your company is a lot like your child. You nurture it, work hard to help it be the best it can be and watch it grow with pride! Much like watching a child grow into adulthood, at some point you must step away. Choosing the fate of your business, however, is entirely in your hands. This is where a well-planned succession plan can really come in handy!
What is a succession plan?
A succession plan is the process transferring over your business upon your retirement either through selling your business or passing it on to your chosen successor. This could be your business partner, a family member, friend or an employee. A succession plan helps your transition to retirement in a way that is financially and emotionally viable for you. With a plan in place, you:
Ensure your business transfer goes smoothly
Protect the value of the business
Provide financial security for yourself and your family
Protect your business’ hard-earned reputation
Overall, it’s a highly-recommended practice to have a solid strategy in place that helps you transition in to the next phase of your life smoothly and stress-free.
Top tips to consider
One of the first things most people think about when it comes to their business succession is who will take over and how will that work? Here are two important tips for getting started with your plan:
1. Ensure you have replacements for 85-90% of your critical roles
Employees come and go, and as much as we hope to build a dedicated, qualified team that sticks around for the long haul, we must also respect an employee’s choice to pursue other opportunities. We suggest that you have a “mini succession plan” in order to ensure your critical positions are covered by competent, committed employees. Covering these roles helps make your own transition easier, knowing your team and your business will be able to carry on without your presence.
2.Choose your successor and trust yourself that you made the right call
Even if retirement isn’t on your immediate radar, the idea of handing over your business to someone new, no matter how trusted they are, can be a scary thought. After all, no one will run your business exactly as you do, and understand all the inner workings. Keep in mind that you chose your successor for a reason, it’s important to trust that they will keep up the hard work it takes to run your business.
Focus on finances
Your business succession plan involves more than just naming your successor and retaining valued staff. It must account for the many financial factors involved in the business itself, which can include your business’ assets, revenue, real estate, taxes, and more. Part of a solid succession plan involves working with other professionals during this process such as a financial advisor, accountant, your bank or lender, as well as a lawyer. Some key considerations to review include:
What is your business’ current market value?
Do you want to transfer or sell the business to your successor?
Are your taxes up-to-date?
Will you be liquidating any assets?
Will the business name change?
How will clients and customers be notified of the new ownership?
You may continue to receive income
Depending on your plans for retirement, you may still wish to play a role in your business. One of the great benefits to having a succession plan is your ability to define your involvement and still earn an income from your business, should you and your successor agree to the terms of your future participation in the company.
Keep in mind that your succession plan should not only cover the end result (finally being retired!), but the steps taken from where you are now to where your business will be following retirement. A good succession plan takes time, so be sure to set up clear goals, timelines and milestones along the way. Finally, be sure to speak with a financial advisor to weigh your options and help you create a plan that lends to your financial success! Darryl Smith of Synergy Life Financial specializes in retirement planning, and can give you sound, knowledgeable advice to help you plan your business transition and enjoy financial freedom! Call (705) 434-0562 to discuss your well-earned succession plan today.