There are very few things in life that are completed successfully without a plan. Whether it’s a new recipe, a new piece of furniture you’re trying to build, or the start of a new pathway in life, there are a set of plans you follow until you reach your end goal. Once the goal you were trying to achieve has been met, have you succeeded? The funny thing about success is there is no start and end to it meaning it is something you consistently need to work for. When it comes to your business, you created it, you work hard for it, is expecting something in return too much to ask for?
What is Early Succession Planning?
Early succession planning is something every entrepreneur needs to carefully think about and consider as they approach retirement. It is this plan that will help you find the right strategy for selling or handing over your business. Whether it’s an employee, a family member, a friend, or another entrepreneur, this is a very important decision for you to make.
Why Should You Plan Ahead?
- Maximize the value of your business
- Maintain a service for your community
- Explore transition options
- Take the time to choose the right successor
- Prepare for unexpected events such as illness, accident, or death
- Have a positive impact on your business’ long term viability
What Are Your Options?
Real estate is a business where you know that time is valuable, and planning your succession plan early ensures you have the time to do it right. Before making a final decision, it’s important to ensure the decision lines up with your retirement lifestyle choices, provides you with enough retirement income, and secures the continuity of the business. The most common options for your succession plan include:
- Transfer the sale of your business to a family member
- Management or employee buy-out allows your business to continue running as your successors are already familiar with the history of your business and how you run the business
- External sale to a third party allows you to sell your business to your partners, investors or even competitors
What Does the Succession Plan Involve?
When creating your succession plan, there are two main things that need to be considered: who will be taking over the day-to-day operations, and how will the sale of shares be handled.
One way to help you determine how much your business is worth is by enlisting help from a business valuator who can help you maximize your company’s value before the sale goes through. There are three different approaches they can use to help you determine the value of your business:
- Based on the business’ total assets
- Based on the investor’s performance outlook
- Market-based approach
Finding a Successor:
Choosing someone to fill your shoes is not a decision to take lightly. Following these five steps will help make the decision a little easier:
- Determine the skills the individual will need to have to be successful in the role
- Identify possible candidates
- Create a training plan to help prepare candidates for the role that may lay ahead and set them up for success in the future
- Assess and identify your successor
- Communicate the succession plan with confidence that the candidate is fully ready to take on this new role.
How to Finance a Business Transition?
Ensuring a smooth transition is an important step in the process and one that can sometimes face setbacks when it comes to financing the business to ensure both the buyer and seller benefit from the sale. A balanced financial structure not only improves the chances for success, but ensures the successor is not left with debt that will affect the company’s ability to grow. Below are some financing options:
- Buyer’s investment
- Seller financing
- Conventional financing in the form of a secured loan
- Investment from a financial partner
It is never too early to start preparing and planning to ensure your business is taken care of as you approach retirement. For more information, reach out to your local government organization to learn everything you need to know.