Planning for the future is key in all aspects of running a business. Planning your exit is no exception.
The Small Business Administration estimates that approximately 70 percent of private companies will change hands in the next decade or so—chances are your business is one of them. How do you invest in your company’s potential while preparing to retire or move on?
Succession planning is a critical step to maximizing your ROI for all the years you have spent cultivating your brand as a business owner. When planned effectively, exiting your business allows you to finish strong and fund your next chapter, while resting assured that your company is in good hands.
For an introduction to the broad topic, we turned to Josh Daly, Southern Region Director of the RISBDC, for his insight on common initial questions about succession planning that business owners have:
When should a business owner start thinking about succession planning?
It is never too early to begin thinking about succession planning, and what a successful exit would look like to you as a business owner. Along with asking these key questions for starting a business, beginning with the end in mind is a best practice throughout all areas of business leadership.
Three to five years prior to your desired exit date, it’s time to start thinking seriously about the specifics of your succession plan. This leaves you enough time to ensure a seamless and successful transition, and coordinate all of the factors and stakeholders involved in the process.
What is the first step in the succession planning process?
Once you’ve identified that it’s time to have a succession plan in place, the next step is to gain clarity on what your goals are as the owner and/or seller. What are you hoping to get out of the process? When it comes to identifying your wants and needs, consider:
- your timeline for exiting the business
- how much money you hope to walk away with after taxes
- what you are looking for in your successor
The answers to these questions will shape the plan you craft and carry out.
Once your goals are set, here are a few additional considerations for your succession planning process:
- Determine how realistic your wants and needs are, and set benchmarks for accomplishing them as you move towards your exit.
- Identify the initial (informal) value of the business.
- Figure out who your successor will be. Ensure that they are aligned with your vision for the company, as your peace of mind depends on it.
What resources should small businesses seek out for further support and information regarding their succession planning?
The exit process can’t—and shouldn’t—be attempted solo. In order to maximize your succession planning, you need to engage a team of professionals in the exit process, including:
- accountants/tax professionals
- wealth/financial advisors
- business valuation/appraisal professionals
Additionally, our team at SBDC can help. We serve as a confidential sounding board for small businesses, helping you to identify value drivers, uncover the value of your company (and how much it can sell for), and clean up your financials and other processes so you are fully prepared for a smooth, successful exit.
Succession planning can be a daunting process for a small business. That’s why the Rhode Island Small Business Development Center is here. As a no-cost, confidential resource, we can help you strategize your way through the succession process and exit your business with peace of mind.
If succession planning is in your near future, schedule an appointment with one of our small business consultants today.