Important considerations for your succession plan
At some point, every business owner will leave his or her business. If nothing else, it’s a fact of life: we won’t be around forever. And when that time comes, having a plan is key to a successful transition.
Every business owner should have a succession plan—especially those who are within 10 years of retirement. Here are some important things to consider for your succession plan:
1. When do you plan to exit your business?
Setting a date for your exit can help you plan for it financially. For example, once you set a date for your exit, you can determine if you will have enough for retirement. Thinking several years ahead gives you the opportunity to adjust your date, or make changes in your business to increase its value.
2. How much value do you need from your business?
After you determine your exit date, the next step is to determine the value you need—or want—from your business. Hire an expert to perform a business valuation to assess the value of your business. (Remember, every industry is different, so it’s important to make sure your business valuator is an expert in yours.) At the end of the day, you want to make sure you have enough value in the business to retire at the lifestyle you desire.
3. To whom will you transfer your business?
Will you sell your business to a family member or trusted employee, or will you sell it outright? How will your employees be taken care of? Are you going to ask for fair market value? There are a lot of things to consider when thinking about the next generation of your business. A succession plan provides security (not to mention, peace of mind!) for both future owners and current employees. With a plan in place, they know what to expect when you hand over the business, or if, heaven forbid, an unexpected death or disability were to occur.
4. How will I receive payments from the sale of my business?
It’s important to strategize the sale of your business to minimize your tax burden. Talk with your tax professional to determine if you should stretch out your sale’s payment plan or take the payment in one year. Most important, be sure to know what you can expect for a net amount.
While you can’t plan for what will happen in the future, you can plan for a successful business transition. Doing so can help you achieve financial security while preserving your business legacy. Don’t put it off. Talk with your CPA today to make sure your good name—and your employees—will be well taken care of.
Doug McDonald, CPA is a business tax advisor. When he’s not soaring through the skies, he’s helping his clients’ businesses soar to new heights. You can reach Doug at 952.939.3207 or at firstname.lastname@example.org.