Succession Planning Strategies for a Small Business
If you are the owner of a thriving business, you will no doubt have put in some considerable effort to make it to this point. The last thing on your mind is who is going to take care of the business when you retire or are otherwise unable to carry it on. However, the issue of succession is not one that you can leave up to fate; you need to be proactive in devising a suitable plan for when the day comes.
The following are the most common succession strategies that small businesses take advantage of. It is up to you to decide which strategy is best-suited for your individual situation based on your particular circumstances and aspirations.
Selling to a Co-Owner
If you founded your business along with another person or people, they will usually be the obvious choice to succeed you. If you are planning on going down this route, then you should draft a mutual agreement, setting out the precise terms of the succession. Even if you have no intention of giving up your business soon, if you think that one of your partners is the right choice to succeed you in the unlikely event that something does happen to you, it is worth formalizing it in writing.
One of the biggest advantages of this type of succession plan is that it leads to the best continuity – someone who shares ownership of the business with you will already have a good understanding of how it operates.
Pass it On to an Heir
For business owners who already have members of their family working for their business, passing it on to them is often the preferred choice. For the many businesses that are named after the founder’s family name, passing on the business to a familial heir enables successive generations of a single family to benefit from it.
Sell it On
You may well want to pass your business on to an heir or co-founder to ensure continuity and may be entirely unconcerned with making any money on the deal. On the other hand, you might have an accounting practice for sale, for example, and want to make as good a return on it as possible.
If this is the case, you will need to put together a portfolio or prospectus for potential buyers that walks them through your business, what it is, who runs it, and why you think it is worth the asking price. Remember, no matter how much blood, sweat, tears and love you have poured into your venture – an investor only cares about the raw numbers.
It is important for every business to have some kind of succession plan. The unexpected death or incapacity of a business leader can otherwise be the death knell of the entire business. After you have worked hard to build up a business from nothing, you want to ensure that it will be able to survive and flourish without you. Whether you plan on retiring soon or not, you should make sure you have a succession plan in place.