For COVID-19 Resources, Click Here

Future of your business depends upon succession plan

If you’re like the millions of baby boomers now nearing retirement age, you’ve probably thought about handing off your business and dedicating the rest of your life to nothing more strenuous than perfecting your golf swing. But, as you know, it’s not easy to relinquish control of something you’ve poured your heart and soul into for years. And you’ve probably been too busy with the day-to-day challenges of real estate investing to create a formal succession plan.

Unfortunately, not planning for the eventual transfer or sale of your business can jeopardize not only its future, but the futures of your partners and employees, and can even affect your own financial future. After all, most business owners rely on revenue from the sale or continued operation of their businesses in retirement.

So it’s critical to develop an effective succession plan – one that is customized to your business and retirement needs.

 

To sell or not to sell. The first question to ask when pondering succession is whether you plan to transfer the business to a family member or sell it. If your children are involved in the business or there’s another logical successor – someone who, with a few additional skills, could fill the seat behind your desk – you should start grooming that person as early as possible.

Depending on the amount of support and knowledge your prospective replacement needs, this may take several years. Because business succession and estate planning are generally linked, you should consult legal and financial advisers at this time to help you create the transfer plan, fund your retirement, and build an estate plan that equitably divides your wealth among family members who participate in the business and those who don’t.

 

Looking outward. If no family member is qualified or prepared to assume the mantle, start preparing your business for its eventual sale. Begin by upgrading your business processes, with special emphasis on financial management and reporting. A well-run, efficient business will command the highest price.

Next, determine the market value of your business. This requires the expertise of a professional who specializes in business valuations. Your valuator will assess your business’s tangible and intangible assets and project future revenue. Valuation professionals can help you decide whether it makes sense to sell your business intact or sell assets separately.

When you’re ready to put your business on the market, develop a list of possible buyers. The first, most obvious names on your list should be any business partners. Other potential buyers include employees, who might be able to buy the company collectively using an employee stock ownership plan, competitors and business associates.

Once you’ve identified a few buyers, formulate a plan for marketing your business to these groups. You can personally approach potential buyers with whom you have an established relationship – for example, partners, business associates and employees – but probably should enlist the assistance of merger and acquisition specialists such as business brokers and investment bankers to act as a go-between with other types of buyers. These advisers can guide you through the often lengthy and complicated sale process.

 

Make it pay. The complexity of your succession plan ultimately depends on your long-term goals – whether you wish your business to continue as a family enterprise or prefer to sell it. Either way, a sound succession plan will help ensure you benefit financially from the years you’ve dedicated to your business.