Updated: May 21, 2022
So many entrepreneurs and business owners are so wrapped up in the day-to-day routines of their companies and concerned with keeping the lights on that they sometimes let the issue of business succession planning sneak up on them. It’s understandable, though; there are plenty of risks in the immediate future to take your attention on the biggest risk to your company’s long-term survival. If you have put off planning for your exit strategy or looking for tips to help you get started, please take a moment to read the four key points we have outlined below.
Start Early—at Least 15 Years Early
As a business owner, you know all-too-well the importance of planning as far ahead as possible. Well, it’s no different than planning for the passing of your entrepreneurial torch. While proper planning of your exit strategy can take a while, it can also take years to execute it effectively. Depending on how you want to transfer your shares to your successor, it might be prudent to include favorable terms in your initial business plan.
Identify Criteria for Your Successor
This might be the most important piece of the puzzle. What has it taken for you to guide your business to success? What characteristics do you feel is important for your company’s owner to have? Furthermore, do you want to keep your business in the family (literally or through an internal promotion)? Or, would you be more comfortable looking to outside hires? If you are concerned about your ability to make an objective decision, you might want to put together a search committee to help choose your successor.
Consider Changes to the Corporate Structure
Depending on how the ownership structure is laid out, you might want to move shares around or otherwise drastically change the state of some things internally. If you want to avoid the capital gains tax or operate around other tax obligations, it is important to begin as early as possible.
Start Training Your Successor
Once you have your candidate in mind, it is time to start shifting some responsibilities to him or her. Determine how you will phase out your involvement with the company over time. Remember, your successor will not gain the necessary tools to thrive in your old role if you do not allow your replacement to make mistakes and learn from them. This can be one of the most difficult things about handling a business succession plan.
There is quite a bit you can do right now to make sure that your small business defies the odds and makes it through the next generation of ownership. One more important piece of the puzzle is hiring a competent and knowledgeable business attorney who will work tirelessly to understand the particulars of your situation and work to achieve your specific goals and objectives. Monahan Law Firm is well-equipped to handle the legal side of any business-related activity, and we would be honored to provide you with effective legal counsel. Call us today at 623-385-3190 to discuss your options.