Did you know that more than half of the small business owners in the United States are at least 50 years old or older? In the U.S. alone there are 28 million small businesses (fewer than 500 employees) and over 22 million self-employed business. According to CNBC surveys, it is believed that 80% of small-business owners plan to sell their business to fund their retirements, however only 30% percent have a written succession plan. At MKS&H, we work with our clients to be prepared, so here are our top 5 successful succession tips that will benefit small-business owners:
- Creating a Succession team:
Identify key components and members who can assist in the succession. Think about a lawyer for legal issues, accountants for tax and book issues, a financial planner for finance, an administrator for human resources, and involving key employees in the process.
- Identify potential successors:
Family? An employee? Or someone from the outside? You want to find someone who has the same ambition you have for your company, including short and long term plans. When making the decision, also consider what training is needed to properly prepare the successor.
- Strategic Planning:
This can span across both personal and business related goals and planning. Distinguishing what your personal goals are for after the transition can be a great place to start when planning. This allows for planning backwards to try to reach those forward looking goals. Have both short and long term goals written out. Remember, strategic planning is a process and not an event. Also, incorporate key plan members’ engagement to generate additional input and help build their commitment to the plan.
- Training for new roles:
After identifying the appropriate successor(s), begin executing the plan to transition them into the role as early as possible. This can be a slow progression and it might take time for the appropriate person to develop into their new role. An early start also helps employees get acclimated to the new person and their management style.
- Evaluate your own retirement savings and insurance.
Consider whether you have sufficient retirement savings. Consider if you should work out a long term buyout clause to keep steady income coming during retirement. Also, consider your taxes and long term tax strategies such as having a business consultant to work with you and adding them to your projections as well as working with an accountant for any potential estate and inheritance tax issues.
Proactive planning for your succession is paramount in having a successful one. As the great Benjamin Franklin has said” By failing to prepare, you are preparing to fail” Have a PLAN! Be patient and execute accordingly.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.