The Five Myths of Business Succession Planning
I will be speaking next week in Logan at a workshop for business owners on the subject of estate planning and succession planning for the business owner. In preparing, I came across an article in Trust and Estates magazine entitled The Myths and Realities of Succession Planning for Small Businesses. The article set forth five myths that I will discuss at the workshop, but I think bear repeating.Myth #1 – There is Plenty of TimeAs I mentioned a couple of weeks ago, procrastination is public enemy number one when it comes to planning of any kind. This is especially true when it comes to succession planning. Failure to acknowledge the reality of the lost opportunities that come with the passage of time can be disastrous. The article points out that time can be your enemy or your friend. Waiting until after an event, such as death or disability, is not planning, but crisis management. The reality is we don’t always know how much time is left – so start now.Myth #2 – It’s Easier to Just Sell ItBut to who, when and for how much? Selling a business is rarely just a matter of listing it for sale. Timing is vital. The value of your business and the tax impact when selling can vary greatly depending on your preparation. A sale to a third-party is a viable option, but it still requires planning.Myth #3 – A Successor Will Be Ready When I AmIf you are not preparing your successor now, they will not be prepared to take over in the future. A lengthy period of quality mentoring will provide a great return on your investment. Prepare the person not just on the technical side of the business, but also in the relationships that are important. Remember, the quality of your retirement will likely be dependent on their success.Myth #4 – Equal is Synonymous With FairI have often preached that fair and equal are not the same thing. If you simply want to give away the assets of the business, maybe dividing them equally among your children is the way to go. If you want the business to succeed into the next generation, it will require a different analysis that recognizes what will be required to make that happen.Myth #5 – Giving Up Ownership Means Losing ControlIn fact, with good planning, the opposite is true. A well thought out and well timed plan will allow you the maximum of control, while still effectively transitioning the business to the next generation. But remember, ultimately the goal is to transition the business to a new owner. You want to retire and you want your son, daughter, or key employee to succeed. You cannot hang on forever.You don’t need to swallow this elephant in one bite, but it is never too early to start thinking about and working on your exit strategy. If you want to learn more about this topic, please contact our office to set up a consultation.