Securing your business succession plan before it’s too late is just as valuable as growing your business. Your succession plan is your retirement or exit strategy, and each business owner has a unique path.
Starting a succession plan early and including business advisors, such as attorneys, accountants, investment bankers, or financial planners, will help ensure a successful and smooth succession path. Building the team is the first step!
Each path has its own unique planning strategies, as well as pros and cons to consider to protect your business from a journey down a rocky road in the future.
Family Transfer
Transferring (through gift or sale) all or part of your business to family members (or trusts for their benefit) requires early planning to cultivate business leaders in the next generation. Additional issues to consider include:
- Identify the right family members to take over. An objective analysis is key to maintaining the Company’s success.
- Transferring all at once vs. over several years.
- Start engagement early to allow successors to learn while the senior level is still engaged.
- How do these transfers fit with your overall estate plan?
Transfer to Employees
Transferring all or part of your business to employees has become a popular option in recent years. This can be accomplished using several different structures, including sale to an ESOP (Employee Stock Ownership Plan), sale to a management group, or the sale or bonus to one or more key employees. In addition to the considerations stated above for family transfers, pay special attention to tax implications as well as the ongoing corporate governance of the business (who gets to make the decisions!)
Third Party Sale
Many business owners sell to a third party that is either a strategic buyer (often a competitor that can achieve synergies and grow through the purchase) or a financial buyer. Financial buyers are typically private equity funds that aim to grow the business with a plan to sell within 3 to 5 years. Some private equity structures provide the business owner with a “second bite at the apple” by investing in the fund and working as a consultant until the business is resold. Identifying your goals (maximum price vs. cultural fit, etc.) early will help for clear negotiations and a smooth path!
Liquidation
If the above options are not the right fit, you may still be able to extract significant value by closing your doors, selling off assets, and transitioning customers to other area businesses. This option is often overlooked but should be part of your analysis.
Preparing your business for the future is a journey, not a destination—so engage the right team to help you choose the right path!
Tagged In:Business Succession PlanningCompany Formation and Business PlanningCorporate and BusinessCorporate GovernanceEmployee Stock Ownership Plans