According to a recent poll from Nationwide, 60 percent of small-business owners don’t have a succession plan in place. Among those without a plan, nearly half believe such a plan isn’t necessary.1
Are you among those without a plan? If so, you could be creating significant liability for yourself, your business, your employees and your family. A business succession plan helps you make a smooth transition to the next owner without disrupting business operations.
A succession plan also protects your interests. It helps you get fair value for your business and even retain some form of control or income. You can use your plan to identify the right successor and to make sure the next owner doesn’t deviate too far from your long-term vision.
Unfortunately, without a plan in place, you may be forced to sell your business to the best available buyer. That could mean accepting less than fair value or selling to someone who has plans for the business that don’t align with your interests.
Below are three common myths related to business succession planning. If these sound familiar to you, it may be time to reconsider your thinking around succession. A financial professional can help you develop and implement your business succession strategy.
Myth 1: You don’t need to worry about succession right now.
Many business owners avoid succession planning because they believe it isn’t an urgent priority. After all, you may have years until you retire. You may think you won’t retire at all. And of course, you have a business to run. You have plenty of tasks on your plate without worrying about succession.
However, time is your best ally when it comes to succession. If you have years until retirement, this may actually be the best time to start planning. You can use that time to groom and train your successor. You can make strategic improvements to your business to increase its value. You can even start having initial conversations with potential buyers and perhaps gradually implement the transition over time.
It’s also wise to have a succession plan on hand in the event of an emergency. Even if you don’t plan to retire for years, you could face an emergency that forces you to step away from the business. For instance, you could suffer a disability or even pass away. Your plan will provide family and employees with a road map for how to proceed.
Myth 2: Succession is easy if you’re passing the business to your kids.
Perhaps your dream is to pass your business down to future generations of your family. You should know that the odds are against you. According to a recent study, only one-third of businesses survive a transition to the second generation. Just 13 percent make it to the third generation.2
If your goal is to pass the business to family, a succession plan is even more critical. You’ll need to identify which heir will be the leader of the business, and you may need to groom that person for the role. You also may need to communicate with those who aren’t chosen and develop a plan to make sure everyone benefits from the transition.
Family dynamics can be tricky, especially if individuals feel they’ve been left out. A succession plan can help you avoid the most common risks and pitfalls.
Myth 3: Business succession means forfeiting control or income.
Finally, many owners don’t want to develop a succession plan because they don’t want to relinquish control of their life’s work. After all, you built this business. You likely want to lead it and benefit from it as long as possible.
However, succession doesn’t have to mean giving up control. You can develop your succession plan however you wish. Your plan may include a gradual phaseout, in which you retain control over several years. You could retain an advisory position or a board seat. You can even structure your plan so you continue to earn income from the business long after you retire.
Ready to develop your business succession plan? Let’s talk about it. Contact us today at Sprouse Financial Group. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation.
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