If you want to know more about business succession planning, you've come to the right place. This blog is the second in a set of six designed to help small business owners understand the importance of the succession planning process. If you missed it, read the first in the series: "Business Succession Planning: The Key to Your Future."
This second blog will help you decide when and how to start the business succession planning process.
When to Start the Business Succession Planning Process
Many small business owners do not realize the importance of starting the succession planning process early. Think about the term "process." Merriam-Webster defines it as "a series of actions that produce something or that lead to a particular result."
The timing of your business succession plan depends on many factors related to your company, as well as your transition goals. Common business-related factors include the following:
· the industry in which your company operates;
· the structure of your business; and
· the type of transition you wish to pursue (this will be discussed in a later blog in this series).
Your personal goals also inform the timing of your business succession plan. Here are a few examples of common owner goals:
· funding retirement;
· helping the owner wind down gradually;
· providing continuity to clients, customers, investors, or employees; and
· leaving a legacy behind.
Some of these goals are in natural tension with one another. For example, if you want to take more money out of the company to enhance your retirement, that may work to the disadvantage of clients, customers, investors, and employees. Beginning the transition process early allows you the time necessary to identify and prioritize your goals, to pursue the ones that matter most to you, and to minimize undesired tradeoffs.
So when do you need to start thinking about succession planning? Unless you are going to just lock the doors and walk away, you have the best chance of meeting your goals when you begin early. And even if you're thinking of only selling off your tangible assets, it can take time to find buyers offering prices you're willing to accept.
Timing is even more important if you want your business to live on. For example, you should start planning many years in advance, possibly 10 years or longer, when your business operates in certain industries, when you want to achieve a non-family-member internal transition, or when your company is structured as a sole proprietorship.
Internal transitions involving close family members commonly require at least five years of planning. This allows adequate time to structure internal records, transfer knowledge, and arrange suitable financing.
How to Start the Business Succession Planning Process
The safest course of action is to develop an ongoing relationship with a seasoned business attorney who has substantial experience in your geographic market. Careful succession planning is more of a marathon than a sprint. You must take into account things like business cycles, technology horizons, workforce maturation, and other issues specific to your business that will bear on the best point to make the change. You should also build in time for mistakes and surprises.
Your business lawyer can help you identify your goals and build a plan to help you meet those goals by your desired retirement date. Much of the time, business owners are too close to day-to-day management to be able to anticipate problems and plan effectively. Experienced business attorneys have guided dozens of owners through succession planning and are in the best position to guide the decision-making and succession planning process.
You can get started on your transition planning process by opening a discussion with a knowledgeable business attorney. Your attorney can help you clarify your goals, anticipate and avoid problems, and ensure you know when to start the process to best achieve your goals.
Take the time now to learn about timely, effective business succession planning for you and your company. Contact me, Stephen J. Golder, by calling (866) 617-4736 or completing our firm's Contact form. We pride ourselves on helping business owners in West Virginia, Kentucky, and Ohio achieve their goals at retirement and beyond.