The Succession Planning Process for Small Business Owners

It is never too early to start the succession planning process. You may not want to think about anyone else running your company.

The Succession Planning Process for Small Business Owners

You may prefer to consider selling the business, or dissolving the company altogether.

Whatever you decide right now is not set in stone. You can review and revise your plan at any time. In fact, it is a good idea to make adjustments every time something changes in your life.

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Just as with your will, you need to keep your business succession plan up to date. You want to ensure the smoothest transition possible for the people who will have to pick up the pieces in the event of your death.

Start the Succession Planning Process Early

Business advisers say it is never too early to start planning an exit strategy. They encourage budding entrepreneurs to build a succession plan right into their business plan.

This may sound silly. When you are just starting out, the last thing on your mind is turning your business over to somebody else.

The point is, the more time you take preparing, maybe training your children to run the business, the easier the transition will be. The more you get your children interested in the business and excited to take over, the better equipped they will be to run the business after you retire, or in the event of death or disability. Accidents or illness can strike at any time.

Involve Your Family

Creating a succession plan on your own, and then announcing your plans at the dinner table, will cause more than just a few dropped jaws. You could likely start a full-fledged family feud. The best way to approach the succession planning process is for all involved to sit down together, and work out a plan that suits everybody.

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Give every family member, and anyone else that may be affected, a chance to express their views. Personal feelings, individual goals and ambitions and each person's skills and talents must all be taken into consideration.

Once you have a draft everyone is satisfied with, you can take it to an accountant or a lawyer for specialized advice on extra tax saving strategies, or to see if any important factors have been overlooked.

Be Realistic About Your Loved Ones

Look at your family realistically. You may have dreamed of your baby boy taking over the family business since the day he was born, but he may have other plans. He may not even possess the necessary skills, or have any interest in your business.

You can force him to learn. You can even send him to school for the proper training. But, you cannot force him to be interested.

Forcing your will onto a family member is a recipe for failure. If your successor does not have the same passion for the business that you do, then you should find another successor, or sell the business.

A successful small business thrives on the passion of the owner. It is this passion that motivates employees and attracts new customers.

Maybe none of your children are capable of taking over from you. You may have to sell or dissolve the business. Look at any possible successors realistically and objectively during the succession planning process, and think of what is best for everyone, and also what is best for the business.

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Not Everyone Has to be Equal

It all sounds nice in theory to give every one of your children an equal share of the pie, but that might not work well in practice. Remember, management and ownership are not necessarily the same thing.

If one child is more interested and capable of running the business, it only makes sense that he be given a bigger share. Especially if the others don't take any active part in the business operations at all.

Is it fair for one person to do all the work, and the others to reap equal rewards? That may have been how things worked when you were in charge, but siblings are normally not as generous with each other as a parent is with a child.

If shares are divided equally, then it would only be fair for the one running the business to draw a suitable salary above his earnings from the business.

In some cases, it may be best to transfer management and ownership both to one suitable successor, and make other arrangements for your other children. These are all scenarios you and your family need to examine together.

The Succession Planning Process for Small Business Owners

Train Your Successor

You cannot expect your successor to effectively run the family business if he has never set foot in the company, or if he has been working in a menial role.

Yes, working from the ground up is the best way to learn every aspect of a business. But there comes a time when you are going to have to take him into the office, and teach him the other end of the business.

That is another reason why it is so important to undergo the succession planning process long before you are ready to hand over the reins. You have to know who your successor will be before you can start training him. Keep in mind, it will take several years to prepare him properly.

As a sole proprietor, an entrepreneur that has started his business all alone and worked hard for years to build it up to be a success, sharing this responsibility with someone else may be difficult. Even sharing this with your child who you love more than anything.

But think of what it means for your child's future and the future of the business. You are not handing your business over to just anyone. You are providing your child with a strong start in life. Not just a job, but a real chance to be a successful business owner.

Plus, you are providing a good stable income for your other children, as well.

Get Expert Help With the Succession Planning Process

You and your family have to make the important decisions about the future of your business. But a good lawyer or accountant with experience with the succession planning process can help you with the legal aspects, and help you find legal tax loopholes.

Taxes are often the number one reason a transition fails. Without proper tax planning, your business could be in bankruptcy before your successor even warms his chair.

Contact Us For a FREE Consultation

We're waiting to help you! Click here to ask any question. We'll contact you with your answer, or to make an appointment, free of charge.

Start your succession planning process early, and your business is sure to survive long after you are gone.

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