Planning For Owner Succession In A Small Business

A succession plan is as valuable an asset (albeit intangible asset) as any other asset of a business. A viable succession plan can be a hedge against the devaluation of the other business assets or a reduction in morale or productivity. When interested parties know the intention of the owner, there is a feeling of stability and continuity.

Ideally, the business owner would like the luxury of knowing that the business will be passed along to a beloved family member. Perhaps a child, spouse, sibling, or close personal friend has expressed both a desire to continue operating the business and has demonstrated the necessary business acumen for continuing successful business operations. Other options include the sale of the business to employees, business partners, competitors, vendors, customers, and even total strangers.

A necessary step in the succession process is an accurate assessment of the business, including the current situation and expected future outcomes.

The relevant financial data including the value of company assets (as reflected on the balance sheet), and company income and expense information should be prepared in a transparent manner. Also, an honest appraisal of the future profitability and stability of the company must be presented to everyone.

The succession plan should be reviewed on a regular basis, at least annually, or at times of change. The longer the time of the planned exit, the more often the plan should be reviewed. There are numerous reasons that a plan may not be useful as time passes, and the business owner does not want a lot of “unforeseen circumstances”. For example, the original successor decides he or she does not want to continue in the business. The original owner may fall ill and need to leave the business sooner than anticipated. Certainly “what if” scenarios should be part of the plan.

There are many reasons why business owners refuse to prepare or delay preparing a feasible succession plan. The idea of a changing lifestyle, relinquishing control, or even consideration of one’s own mortality are reasons to not confront the inevitable life changes. However, if the business owner views the succession plan as a positive step that can benefit many people, the plan (and transition) can be a great experience.

This article was originally published on AdamMarquardt.co