This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.
When I was a practicing financial planner, I was shocked at the number of small business clients who did nothing but blink their eyes in response to my line of questions about their business succession plan.
These are people who poured years of blood, sweat, and tears into their businesses, making it a corner piece in their lives. With so much invested, they had little to no thought towards how the business would evolve with them.
Here are some points for consideration in developing your own business succession plan.
1. Start with the end in mind.
Having an exit strategy is crucial, and often overlooked. Although it is tough to know what your businesses will look like at the end while you are still drafting up the initial plans, a well-researched business idea is always accompanied by a vision. So what is yours?
2. Plan for your plans to change.
While waiting for your child to grow up, get an education, and take notice of your business, you may observe that your plan of transitioning the business to your kids is not going according to the plan. So while having a road map is crucial, so too is having the ability to change your plans and roll with the punches. Keep your eyes open for opportunities along the way.
3. Prepare for the things you don’t want to prepare for.
Proper preparation usually involves thinking about something you would rather not imagine, much less come to terms with. However without planning for these unforeseen circumstances, you could lose the business (along with your livelihood, retirement, and financial security). Here are some planning points to consider that will help you avoid potential catastrophe:
4. What are the inherent succession characteristics of my business?
If you provide a service that requires your presence to the extent that you are indispensable, then you are probably looking to make as much income as possible while you can, knowing that there is little or no resale value.
If you have a service-based business that has expensive equipment or the ability for anybody (with proper training and expertise) to replace you, you likely have a product to sell at the end of the day in the form of equipment and lease takeovers, client lists, and goodwill.
And if you have a business that can ultimately operate without your presence, then you have a great product to sell, which can in turn fund your retirement, or even your next business venture.
5. Why am I in business to begin with?
Although it is a seemingly innocent question, this may be your ticket to developing your own business succession plan. Here are some reasons you might be in business, many of which would have different succession plans. You may find that your motivations are a combination of the ideas below:
Although these business succession planning points are far from exhaustive, they should be sufficient to get the wheels turning on what to consider in the succession of your business. Because whether you want it to or not, your business will eventually succeed you. The question that remains – and that you can control the outcome of - is how graceful will the process be?
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