Could your business run without you?
It's a daunting question to ask yourself. Most business owners are busy running their business to start thinking about what's next and how to fund their retirement.
According to a Business Owner Succession Planning Survey, 78% of small-business-owner clients plan to sell their businesses to fund their retirement, yet fewer than 30% of these owners actually have a written succession plan.
Losing a loved one is difficult. Few owners want to burden their heirs with financial messes in what should be a time of honouring and remembrance. However, this is a typical and unfortunate scenario if a business ownership transition plan is not in place. If there is no one designated to run the business, heirs may have to sell or liquidate at a greatly discounted value in order to gain access to cash.
Because of this, having a business transition plan is a must. Lloyds Brokers have kindly provided a few important points that ought to be included in your business succession plan:
First and foremost, it crucial that there be capable staff or managers who can run the business in your absence. A good plan will address how these key members will be trained and developed to keep the business operating as fluidly as possible. Make sure to take time off and delegate duties so your successors have the necessary experience of running the business independently. Your goal should be to train and get them confident enough to the point where they can run the business in your absence.
Secondly, having a clear path for new ownership is essential. If you plan to transition the ownership to management, there must be a written buy/sell agreement that specifies exactly how, when, and at what price your shares will be purchased by your successors.
If you want the business to be sold to outsiders, establish a relationship with a Business Broker now so they can get to know your business and develop a go-to-market strategy.
Finally, If you would like the ownership to be transitioned to staff or management, there should always be a funding plan to provide sufficient liquidity assets to your family.
Best practices call for an immediate sale of the deceased owner’s shares, but if you do not have adequate life insurance, the proceeds may have to be paid to your family over time. Internal buyers may use their own personal capital, bank debt, and/or business profits to fund the purchase. The source of the funds should be determined in advance and agreed to by all parties to avoid additional issues and heartache for your loved ones.
Even if you don’t plan on transitioning out of your business for years, having a comprehensive plan in place can provide you with peace of mind, knowing that your business, your legacy, and your family’s future are secure.
In fact, you will know that the best way to run a successful business, is to have it in a state where it is ready for sale at all times.
About the contributor:
Garry is Managing Director at Lloyds Business Brokers and a fully qualified and hands-on business intermediary. From owning several businesses, to negotiating complex acquisition and mergers, Garry knows how to value commercial enterprises and prepare them for sale. He can advise on selling, buying, and exit strategy in general.