Are you a business owner without a succession plan? If so, you have company. A recent study from Nationwide found that 60 percent of small-business owners don’t have a succession plan. Among those without one, nearly half said they don’t have a plan because they believe such a plan isn’t necessary.1
A business succession plan is a document that outlines your strategy for transitioning your company to the next owner. You may feel that such a plan isn’t necessary right now. However, the truth is that if you don’t have a plan, you could be exposing your business, employees and family to significant risk.
A business succession plan also helps you realize maximum value for your business and even retain some form of control or financial involvement. You can use the plan to find the right successor and transition the business without disrupting operations or cash flow.
Still don’t think you need a succession plan? Below are three common myths related to business succession planning. If you buy into any of these myths, it may be time to reconsider your thinking. A financial professional can help you develop and implement your business succession strategy.
You don’t need to worry about succession until you’re ready to retire.
Perhaps you feel you don’t need a succession plan because retirement isn’t in your immediate future. After all, you have a business to run. You have more urgent priorities than worrying about who will take over your business after you retire.
The truth is it’s never too early to think about succession. The earlier you start planning, the more options you may have to implement a succession plan that aligns with your goals. You can use that time to find the right successor and groom him or her to take over the role. You can make strategic improvements to your business to increase its value. You can even have early conversations with potential buyers to feel out their perspective. Time is your ally when it comes to planning.
It’s also possible that you may be forced to leave your business earlier than you’d like. For example, you could suffer a disability or even pass away. If so, your succession plan could be an invaluable tool to help ease the transition and protect the business and your family.
Succession planning isn’t necessary if you’re leaving the business to your kids.
Is your plan to pass your business on to your kids or other family members? Unfortunately, many small businesses don’t survive a transition between generations. According to a recent study, only one-third of businesses survive a transition to the second generation. Just 13 percent make it to the third generation.2
A succession plan is even more important if your goal is to keep the family in the business. You might create hard feelings when you choose your successor. You also need to make sure everyone feels valued and compensated, even if they’re not a key part of the business. A succession plan can help you navigate tricky family dynamics.
You’ll have to give up control of the business if you create a succession plan.
Many business owners resist succession planning because they don’t want to give up control of the company. After all, this business may represent your life’s work. You likely want to lead it and benefit from it as long as possible.
Succession planning doesn’t have to mean that you give up control. Your plan may not be implemented for years. Even when it is implemented, it may have you gradually transition out of the business over time. You could even stay on board as an adviser or a consultant. You can also structure your plan so you continue to earn income from the business long after you retire.
Ready to develop your business succession plan? Let’s talk about it. Contact us today at J. Harris Financial. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation.
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