By Todd J. Koch, CPA, MBT, CFP®
For business owners, the prospect of handing over the reins can be difficult at best, painful at worst. For this reason, many business owners avoid even thinking about it. But leaving transition planning on the back burner could leave your business in a perilous spot. Here are a few tips about when and how to start the transition planning process.
Recognize that planning for a transition is, in fact, a process.
There’s a lot more to taking a step back from your business than setting a retirement date. This is true whether you plan to sell to an outside party, a close family member, or a key employee.
Put the right people in place.
Who will fill your shoes? If you have been the only face of the business, you’ll need to introduce your successor to the nuances of your job—and to your customers or clients. This applies even if you want to leave and still own; someone needs to have your skill set for the business to continue. And if you’re planning to sell to an outside party, remember: a strong staff is one of your biggest assets.
Present financial results in a way that shows others what they could do with your business.
Now is the time to think about how someone else might run your business. Start by identifying and removing perks. And be honest with yourself. For instance, do those Vikings season tickets really deliver a financial benefit, or are you just a die-hard fan?
Next, take a look at your bonus programs. Do you have a set formula for these? If not, consider instituting one. It’s easier to explain a formal program to a prospective buyer, and it’s also better for your staff to have a goal to work toward.
Thinking of your financial results in more than a tax manner can help you better position your business—and staff—for the transition.
Get started while you’re in control of timing.
There are a myriad of events, both positive and negative, that can cause you to lose control of timing. For example, if a buyer comes to you out of the blue with an offer you can’t refuse, it may be cause for celebration, but timing will likely be out of your control. On the other hand, an illness or death may force the transition to happen immediately.
Ideally, you should start planning for the transition three to five years before you want it to happen, as this is how long it takes for someone to learn your job. This should also give you enough time to make any necessary changes to your financial reporting.
Talk to someone who’s been in your shoes.
We’ve been through quite a few transitions of our own in the last 90 years, so we understand the process. We also understand that it has to be your idea—no one can talk you into it. Knowing you’re ready to take action is the first step. And the more time you allow yourself to complete the process, the more seamless it will be. When you’re ready, we can help you evaluate financial results and structure compensation programs, as well as simply answer any questions you may have.