According to recent research, two thirds of US millionaires are operating their businesses without a succession plan—and even fewer small business owners around the world have a plan for if or when their CEO eventually exits.
Recent stats from PWC Global show that family owned businesses have exactly the same problem with: 43% having no succession plan, with only 12% surviving into the 3rd generation.
Whether your company has 1 employee, 100 or 1,000, a succession plan is essential to minimize risk and financial loss. Read on to help prepare for a stress-free transition when it’s time to sell or transfer ownership of your business.
Define your objectives
The starting point of any succession plan is to document your long-term goals, both personal and professional. Where do you see yourself in five or ten years? What do you want to do in your retirement? Who are the best people to take over if you have to step away from the business – and how can you best prepare them for this?
Once you’ve tackled the big picture questions, the next step is to plan with advice from your lawyer, accountant, wealth management, and business advisors.
At the same time you’ll be able to start grooming your predecessor and training your employees for a smooth transition when you leave.
Tips for successful succession planning
Most entrepreneurs find it daunting to think about everything they’ll need to do before they can leave the company they’ve worked so hard to build. It takes time to create a useful, well-thought out succession plan—so start early and don’t rush. One of the most important elements of succession planning is clear and timely communication. Be sure to keep key stakeholders, business partners, employees, and family members involved in the planning process early and regularly update them.
Set a reasonable timeline for the creation of your succession plan and try to stick to it. Once you have a plan in place, schedule an annual review. It’s always wise to have contingency plans in place in case any sudden life changes require an unexpected exit.
Many business owners time an annual review of their business plan along with a review of their succession plan to ensure both are always up to date.
A wealth of information is available online for small business owners ready to start succession planning. Free and low cost tools—including this self-paced e-course—can help you get started and stay on track throughout the process.
Although it’s impossible to predict how long it might take for a small business to sell, a good guideline to keep in mind is two to five years. In addition to the other professionals you’ll want to consult as you draft your succession plan, you may want to consider the services of a business broker.
Ask your business colleagues for a referral to a local broker with experience in your industry. A good broker can really streamline the sales process and maximize the perceived value of your business to buyers.
It will be heart wrenching for a business owner to walk away from their company, and some entrepreneurs often plan to stay involved in some way for a few months—or years. Some find maintaining some ongoing role in their business results in a more satisfying, and financially stable, retirement.