Plan the Work, Work the Plan
Even if your business is running smoothly, even if you’ve given some thought about who might succeed you, even if you have a child or two who know the company inside and out, you need to create a succession plan.
Many business owners haven’t – 58 percent of business owners in a 2016 survey by Wilmington Trust had not created a specific plan, while 11 percent hadn’t even thought about succession. Even those approaching retirement were unprepared; 47 percent of those over 65 did not have a plan. The reasons varied but are familiar to most business owners – respondents said they enjoyed running their company; transition was too far in the future to think about; they were too busy; and/or they planned to keep the company in the family anyway.
But it’s never too early to start putting a plan in place. A well-constructed succession plan for the future can help your business in the present in areas such as strategic planning, business valuation, and tax planning. It can help you identify key leadership talent and allow sufficient time to prepare individuals for leadership roles. It also, of course, provides a safety net for unexpected health challenges, family emergencies, and departures of key employees.
The consequences of failing to plan can be disastrous. An owner can die and leave debt or tax liability, leading to the family losing the business. Or family disputes could threaten the business’s future. Or selling parties may not get full value if the business is sold under duress. The long and short of it: If you want your business to continue when you’re not around, you must plan when while you still are.
“There’s no specific answer as to when you begin planning,” says Mary Stark-Hood, an attorney and financial planner and president of the Hood Group, a consulting firm in Oak Brook, Ill. “Everything that an entity does in terms of succession planning revolves around what it’s trying to accomplish in a specific timeframe. It’s specific to a company because it depends on its structure.”
Tom Martin, CPA, managing partner and part of the real estate group at Klatzkin, an accounting and advisory firm in Hamilton, N.J., agrees. “It’s never too early to start,” he says. “I would say five years is a good rule of thumb for at least starting to think about your ideas, and that’s a definite minimum if you’re thinking about selling to an outside third party.”