To your customers, you are your business.
YOU are undoubtedly one of the major reasons that your entrepreneurial business is successful. You remain a key component of what is described as the “value” of your business. Clients, customers and staff consider "you" to be “the business”.
In planning for succession, retirement, sale of a business, or the withdrawal of equity from the business, you need to properly consider the question of how to extract or protect the value of the business.
This planning process begins by (i) a careful examination of the issues faced by the business and consideration of the options available, and then (ii) a step by step process of preparing legal documents, making any required changes in the corporate or financial structure of the business, and a review of your approach to the business.
Do any of the following scenarios apply to your business?
There’s no time to think about planning for the future because (1) the business is very busy, or (2) the business is finally turning around, or (3) the business is going through some tough times but you have confidence that things will change if you just work harder and smarter and better.
You’ve been in business for awhile but you have not yet pursued any significant long term planning, although you know you should. Now your circumstances are changing, you're getting older and so are your customers.
- You have considered some long term planning, but most of it is still being worked out in your own thoughts and it has not been reduced to writing.
- No one but you knows the full picture of how to manage the business, but you just haven't had time to write it all down.
Why you need to consider preparing a succession plan now.
You are not going to be leading the business charge forever. You're getting older and you need to consider what happens to the business when you can no longer run it.
If you do not give key employees some equity in the business, they may either start their own business or go to work for a competitor who is prepared to give them equity and more opportunity.
- If your children are involved in the business, they will want to take a greater role and more responsibility and authority in managing the operations.
If your children are not involved with your business at all (except to the extent they share in the revenues generated by the business), you need to consider who will take over the business when you retire.
- Speaking of retirement, don't you want to enjoy the benefits of the profits for which you have worked so hard while you still have your health and are able to travel and be active?
- Maybe you've decided it's time to sell the business but are not sure how to “package” it and make it attractive enough for someone to buy it at the price you believe is fair.
How a business succession plan benefits family members
Your spouse or children may not be familiar with the workings of your business or its inherent value (hidden or future) and they could be at the mercy of your partners, your employees or your competition if something happened to you.
In a family business, those family members who are actively involved in the business may want to continue to build it, while other family members who are not involved in the business may want to sell it in order to realize on its present value. And if you have a child with special needs or a spouse or parent who needs care, their interests may not be best served by those surviving you or by leaving your estate in the hands of others without proper instructions.
A written succession plan can deal with all of these issues.
Planning for the unexpected
The bubble has burst in our economy - stocks are down, real estate prices have plummeted, interest rates are going up and creditors are nervous. Does your current business plan consider these kinds of contingencies? Do you know what the tax costs would be to your business or to your estate if you died tomorrow?
Your business may be healthy so long as you are healthy, but if you have no succession plan in place to provide for sudden accident, illness or death, how would business decisions be made in such an event?
Summing Up
Take a moment to evaluate what might happen to your business, your estate and your family if either you or your business suffer a sudden set-back. Now is a good time to begin the process of succession planning for your entrepreneurial business.
Image by Dirk Wouters from Pixabay
