Business owners need succession plans well before they retire
- Successful entrepreneurs tend to have the bulk of their wealth tied up in their businesses. Yet two-thirds of businesses have no succession plan in place.
- Succession plans make leadership transition smoother and preserve enterprise value and relationships with customers, clients and loyal employees.
- Putting a good succession plan in place is not complicated, but you should enlist the help of a CPA, estate planning attorney, financial advisor and business valuation firm.
Ed Coyle, who founded this firm over 40 years ago, used to tell us how he was highly disappointed when legendary Chicago mayor Richard Daley Sr. died suddenly in office. Ed felt that Daley let the whole city down by not having a successor in place to take the reins and keep Chicago moving. At the time, Ed was starting to think about the future of our own firm and how he could develop the right leadership to take over.
Don’t underestimate the importance of succession planning. A recent U.S. Trust survey found that only one-third of U.S. businesses have a succession plan in place. Pretty scary when you consider that 90 percent of businesses are small enterprises that collectively employ about three-fifths (60%) of the U.S. population.
Four steps to a smooth transition plan
Whether you are ceding control to the next generation, to an outside buyer or to an internal management team, there are four keys to a successful transition:
- You need to have a clear value proposition. What is the business all about? Be clear on what the business is providing its clients and its customers so everybody in the business can understand.
- You need to have a plan for growth. Businesses are either growing or dying, there is no in between.
- You need to identify and develop the leadership and management teams within the firm.
- You need some kind of succession plan. The succession plan is really no more than an operating agreement that contains buy/sell language about how the business will transition from the current owners to the new owners.
Succession plans are not that difficult to put together, but you do need some important professionals to help you–an accountant, an estate planning attorney, a financial advisor and a business valuation firm–so you can hit all the key areas.
Most business owners have the majority of their net worth tied up in their business. So the value of their business affects their estate, their taxes, their accounting, their investments and the overall valuation of their business.
That’s why you need a really good team of professionals behind you. And by the way, the U.S. Trust survey that I mentioned earlier found that business owners who are working with a financial advisor are 50 percent more likely to have a succession plan in place.
Succession planning is very important for maintaining effective leadership and management of your business. Don’t hesitate to contact us if you would like a free consultation about your business value, retirement plans or succession plan.
Until next time, enjoy. Gary
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