If you are a business owner or partner of an established company, it’s important to develop a succession plan to support the transfer of ownership or share in the event of a life change. Some examples can include a change in profession or preparing for retirement. In any event, creating a succession plan will protect the investment you and/or your partner/s made in starting a business.
I. Transferring Ownership
Here are a few options to consider as you begin to think about transferring ownership of your business.
- Transferring ownership to an heir. Is there someone in your family who would like to take over the business? If so, are they qualified or can they be trained or receive schooling to gain the necessary skills? While these are just a few things to consider as you begin to identify a successor, you will also need to determine if the heir will need to purchase the business, or will it be bequeathed to them?
- Sell business to partner/s. If you own a share of a business, then selling your stake is often the most viable option. In this scenario a buy/sell agreement would need to be in place to comply with the interests of each vested partner.
- Sell business to a key employee. Is there a key employee who would like to continue running the business? The only obstacle with this option is financing as few can afford to purchase a business, depending on its size. However, if a suitable buyer exists within the company, then there are a few options available, such as a business loan or seller financing.
- Sell to an outside buyer. The last option would be to sell your business to an interested buyer who will agree upon the price and terms of the offer. Should this be the route you decide to take, be sure to find a buyer who shares the same vision, goals and ethics you worked hard to establish for your business.
II. Obtain a Business Valuation
Once you have decided on how you will transfer ownership of your business, the next step is to have a business valuation completed. A valuation from a credentialed expert will be more attractive to prospective buyers. It can also be easier for potential buyers to obtain financing or attract interested investors. A business valuation is based on a combination of criteria to include assets, income, and market value based upon recent sales of similar businesses in the area.
III. Prepare for the Transition of Ownership
As you begin the process of transitioning out of your business, begin thinking about how you can ensure a smooth take over for the new owner. For example, identify any weaknesses and develop a plan to resolve them. Evaluate business systems and processes to see if there are areas where improvements can be made to help with a smooth transition. Next, develop a training plan for your successor, so they can gain the experience and skills necessary to manage the business. Meet with him/her regularly to monitor progress as well as offer advice.
Consider offering an incentive to employees, such as a bonus, for staying with the company after your departure. It’s a nice gesture to thank them for their loyalty to you and the business.
As you begin to progress towards your target departure date, start delegating minor duties to your successor to assist them with preparing for bigger responsibilities. Lastly, give some thought to your role after the transition is complete. Would you like to remain involved with the business in some way? Are you interested in serving as an advisor? Do you want to leave completely?
There are many things to consider as you begin to think about creating a succession plan for your business. The key to a successful transition is planning along with proper guidance from trusted advisors!
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