How to prepare for business succession
Most small business owners fail to seriously plan a viable business succession strategy. Even if you have no plans to retire, succession planning is needed in the event something happens to you – death, serious illness or disability.
If you own your business, you need to plan for business succession so you don’t make mistakes such as:
- Not considering your business as an asset, something you want to create and build value for. You want to have a plan.
- Thinking of business succession because of a crisis or health issue. This puts you in reactive mode.
Even if you do plan, there are other mistakes such as:
- Selling to the wrong buyer. Make sure you do your due diligence on the buyer to be sure they will succeed. The last thing you want to do is come out of retirement and go back into business again.
- Assuming your children want to take over the business. There are many dynamics that come into play before you do an internal transfer of the business.
When Should I Consider Selling My Business?
Determining when to sell your business is a difficult undertaking as there are quite a number of considerations that need to be made both on the business and personal side.
Focusing on the personal side, the first thing you need to do before selling your business is to ascertain whether or not the sale will net you enough money to live your preferred standard of living over the course of your lifetime — assuming you are selling the business for retirement. Here it is important to make sure you understand the effects of taxes on the sale.
Many business owners have run retirement planning numbers assuming they are going to net a few million dollars for the sale of their business only to realize they grossly underestimated the impact of state and federal taxes. In this type of circumstance waiting to sell the business a few more years may be enough to offset the effects of the taxes.
Also very common are situations where a business owner underestimated the value of the business and could have sold a few years earlier and sailed off into retirement.
You also need to build into the numbers the cost of selling the business such as the cost of a business broker, real estate broker as well as other types of consultants.
This illustrates why it is important to have your finger on the pulse of the value of your business and to give serious consideration to succession planning and not just a periodic passing thought.
Contact us for more information on First Beacon’s Succession Planning services.