It doesn’t matter if your small business is just starting out or if it’s been around for years – you always need to think about the future. Business succession planning answers the question of, “What comes next?”
Unfortunately, far too many small business owners wait until it’s too late to consider the process of succession. Roughly 83 percent have no written transition plan. It’s crucial that they set up guidelines to ensure business continuity in the case of sudden retirement, illness, or death.
You’ve poured your life into your company. Don’t you want to know it will be properly cared for and managed once you’re out of the picture, by your own choice or otherwise?
In this post, we want to take a moment to list the six steps to proper family business succession planning. There’s never a better time than now to prepare for your business’s future, and this is how you can cover all of your bases.
1. Establish Goals
Succession planning for small businesses is all about goal setting. What do you want to see in the future of your company? What objectives do you want your team to meet in the future, with or without your guidance?
Not only will you need to clearly convey your vision to future company leaders, but you’ll also need to ensure everyone in the company understands key objectives and missions. The more you can get everyone on the same page, the more seamless a future transition will be – both on personal and business levels.
As a leader, you’ll also need to establish your retirement goals in the event that you step back from the company before external circumstances force you to do so. Determine what your cash flow needs will be in the years to come and understand exactly when you’ll need to plan for a leadership transition.
2. Identify Successors & Key Roles
Once you’ve thought about your future and the future of your company, it’s time to select your successors.
Begin by examining your current management team. Assess individuals’ skills and performances, and ask questions about your top candidates’ goals within the company. You want to have a firm idea of who possesses the right strengths and experience to step into future leadership roles.
Furthermore, you’ll need to start thinking about training your future successor(s). How can you begin preparing them for future leadership positions? Should you start involving them more seriously in decisions now to begin the process?
3. Address Taxation Implications
This is something many owners fail to consider during the process of small business succession planning. Every company will face significant legal and tax implications during transfers of ownership.
It doesn’t matter if you plan to give the business away, sell it, or simply transfer ownership to someone in your family or company – you’ll need to completely understand the laws and capital gains taxes that are involved, as well as the business’s liquidity and real estate taxes.
Now’s the time to bring quality tax and legal advisors into the discussion. They’ll help you navigate the process and begin any long-term tax planning and preparation tasks, such as drawing up buy-sell agreements.
4. Get Business Valuation
Next, you’ll need to get the business appraised. Whether you’re cashing out or planning to sell the business, you need to understand what the company is worth.
A certified public accountant (CPA) can conduct an appraisal to help you understand the business’s value. They’ll explain the company’s overall worth, as well as the valuation of the owner’s interest based on the stock’s current market value.
5. Plan the Exit Strategy
Strong business succession planning strategies establish the future method of transfer. You want to know that when the time comes, everyone will understand:
- What the succession plan is
- When and how the plan will be enacted
- How each team member will be affected
It’s important to broach the topic of succession before the plan is in full force. Share periodic updates with your team, especially managers and leaders. Demonstrate your commitment to leaving the company in good hands and keep everyone in the loop.
6. Maintain ALL Documents
Lastly, start meticulously documenting and storing all files related to your succession plan. These can include:
- Legal wills
- Power of attorneys
- Property deeds/leases/rental agreements
- Tax returns
- Financial records
- Bank account information
Neatly storing all of this information will make succession a far easier, cleaner process. You’ll rest easier knowing that everything is in order and that your team can access all of the documents they may need someday.
We hope this business succession planning checklist has given you a game plan for preparing your own. However, we know that the process can be daunting. That’s why we’re here to help.
At Shoup Legal, we have years of experience with succession planning for small businesses. Our team of lawyers offers ongoing support for business owners as they prepare for the future. We’ll explain taxation laws, transfer of ownership regulations, and all of the other details you need.
Are you interested in learning more about succession planning and/or our legal services? Call 951-445-4114 to set up a consultation.