The Future of Your Business: Succession Planning
Ready to hear a reality check
- from other business owners?
Nearly three-fourths of privately held manufacturing firms in the U.S. were formed between 1960 and 1980.
Only about 14% have a succession plan in place for their company if they should die or become disabled.
Half of all business owners expect to sell their businesses to an outside buyer when the time is right.
At any given time 20% of privately owned businesses are for sale, and only one in four will actually be sold.
Here's what is important about these stats*. When we ask business owners when they see a major transition in the ownership of their businesses, most of them reply, "Five years." Suppose they don't start the plan today, then next year it will still be five years out and the year after that another five. Meanwhile the statistics imply that with every passing year the market for business sales will become more and more crowded.
* John H. Brown - Cash Out Move On: Get Top Dollar, and More, Selling Your Business: Every successful exit strategy requires tough questions and careful advance preparation.
If you’ve developed a successful business through years of hard work, you may want the business to continue in some form in the event of retirement, death, or disability.
Perhaps you want a family member to inherit and manage it, or you want the family to own the business but have it be run by a trained management team. Perhaps you want to sell the business and make sure that it sells at a fair value and is run well.
There’s a lot to consider to make sure everything will run smoothly at the time you leave the business for whatever reason, you need to prepare what is called a succession plan.
By their very nature, these plans are fairly complicated. Start thinking about gathering together your professional advisors, such as your business attorney, your estate planning attorney, your business accountant, and your financial advisor.
If you plan on selling the business, you will need to evaluate it—determine what it’s worth.
This again is a complicated process, and you’ll have to draw on the expertise of your team of advisors to get it right. And those advisors will shepherd you through the other complexities of planning a business succession:
For example, setting up a buy-sell agreement and funding the buy-sell with life insurance. The key to success is to create a comprehensive plan now that addresses all eventualities.