Nothing lasts forever, and in business this is especially true. Staff come and go and management gets older – so who keeps the business going when someone needs to move on? It’s a sticky problem for many businesses, but it’s one that needs to be faced, sooner rather than later.
The best time to plan your succession is when you start your business. That way, everyone knows what’s coming and succession is a part of business as usual, instead of a shock that causes jealousy, infighting and insecurity.
If that isn’t possible (or it’s too late), then the best time to start succession planning is NOW. At a minimum, you should be starting five years before you think you might possibly retire. That means you’ll give staff and management time to adjust, and your chosen successor time to train for the new position.
When making your plan you must consider the realities of the market, so you know you’re making the most of your years of hard work.
You may not be able to sell your business
Selling up and finally buying that boat sounds wonderful but may be harder than it looks. Some stats from Xero suggest that so many boomers are reaching retirement age that as many as 90,000 small businesses could be up for sale in the next decade – that’s roughly 20% of SMEs in New Zealand. Statistics New Zealand’s figures put the number higher, at 25%. According to recent surveys of US business owners 4.5 million enterprises – more than $10 trillion worth – will be for sale in the next ten years, but only a quarter of them will find buyers. Local stats back this up: a BizBuySell report shows only one of every five small businesses for sale were purchased in 2016. Why is that?
Times are tougher, housing costs are through the roof, and the next generation is more in debt and significantly less wealthy. Adding to this is that Millennials are shaping up to be the least entrepreneurial generation yet. Most of them would prefer a good job to owning a business. So, we’re entering a period with lots of businesses for sale, and very few buyers.
Even if your business is making good money, there are other factors at play. Buyers will be looking for tidy finances, documented systems and processes, and a clear business plan. You’ll also need to list your assets and liabilities, deal to any legal issues, and decide whether you want to retain partial ownership through shares.
Two more key things to consider are any tax issues that could arise from the sale, and – most importantly – how best to structure and package your business to appeal strongly to those rare buyers.
Handing over the reins (slowly)
If you have someone in mind to take over when you leave, whether it’s a buyer, a team member or one of your children, you won’t do them, your business or your customers any favours if you spring the changes on them at the last minute.
A gradual transition of five years or more gives everyone, including you, time to adjust. You can pass on your inside knowledge, maintain good client relationships, and bring your chosen successor up to speed with the new responsibilities. You can also stay involved, tapering off your workload as the business evolves to carry on without you.
Closing down sometimes suits
If you don’t want the hassle of tax issues, dealing with buyers, or trying to choose a successor, then closing down can offer the fewest headaches. While you’ll almost certainly lose out on the value you could have extracted from your business by selling, it might be worth it to give you the clean break you need.
Don’t wait – succession planning starts now
You’re running a small business and it sometimes takes all your energy, commitment and every waking hour. You’re taking risks, juggling priorities – it’s understandable that you may never have stopped to consider succession planning. It seems too complicated, too charged with emotion (for you and others), and just too far down the track to be a priority.
But someday you’re going to want to retire, and get the most out of your business. Ideally, you’ll also want your business to carry on without you, and that won’t happen without some kind of succession plan.
Starting on the plan now means you’ll have time to identify and train up the right successor, or get your business ready for a buyer. You could make the attempt more than once before just the right person comes along. Start now – there has never been a better time.
Need help developing and implementing a succession plan for your business? Give the experts at Thrive CA a call.