Are you a small-business owner? Do you have a succession plan? If the answer is no, you’re not alone. A recent study from Nationwide found that 60 percent of small-business owners don’t have a succession plan. Among those without one, nearly half said they don’t have a plan because they believe such a plan isn’t necessary.1
While a succession plan may not seem necessary, the truth is that you could be exposing your business, employees and family to significant risk if you don’t have one. A business succession plan is a document that creates an orderly transition between you and the next owner.
A succession plan protects your business, employees and family. It also helps you realize maximum value for your business and even retain some form of control or financial involvement. The plan can help you identify the right successor and transition the business without disrupting operations or cash flow.
Still don’t think you need a succession plan? Below are three common myths related to business succession planning. If you buy into any of these myths, it may be time to reconsider your thinking. A financial professional can help you develop and implement your business succession strategy.
Succession planning is only for people who are getting ready to retire.
You may think you don’t need to worry about succession planning because retirement isn’t on the horizon. You’re likely busy running your business. You have more urgent priorities than worrying about who will take over your business after you retire.
However, it’s never too early to think about succession. In fact, the earlier you start, the more options you may have to implement a succession plan that aligns with your goals. You can use that time to find the right successor and groom him or her to take over the role. You can make strategic improvements to your business to increase its value. You can even have early conversations with potential buyers to feel out their perspective. Time is your ally when it comes to planning.
There’s also the risk that you won’t get to leave the business on your terms. You may be forced out of the business because of disability or even death. If so, your succession plan could be an invaluable tool to help ease the transition and protect the business and your family.
Succession planning isn’t necessary if you’re passing the business to your kids.
Many business owners dream of passing their company on to their kids or other family members. Unfortunately, the odds are against most businesses during a family transition. 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 may have multiple family members who want to lead the business. You could create hard feelings when you choose your successor. You also may need to make sure everyone feels valued and compensated, even if they’re not a key part of the business. Family dynamics can be tricky, but planning can make them easier to navigate.
Succession planning requires you to give up control of the business.
Finally, you may resist succession planning because you don’t want to give up control of your life’s work. After all, you built this business. You likely want to lead it and benefit from it as long as possible.
Succession planning doesn’t have to mean that you give up control. Your plan may not be implemented for years. Even when it is implemented, it may have you gradually transition out of the business over time. You could even stay on board as an adviser or a consultant. You can also 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 Carstens 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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