If you wait until you’re on the brink of retirement, then you’re already too late.
Business succession planning is something you need to start right now, long before you think you’re ready to even consider selling or retiring.
Having a plan ready will ensure that you and your business are prepared for the next phase of your life. A succession plan will bring clarity through complex times and reduce stress for all involved.
Now that you know why a succession plan is so important to your business, how do you choose the right type of plan?
Here are the key options to consider.
Pass the Business On To Your Family
Keeping the business in the family is good because your successor will likely bring a high level of commitment and passion into their new leadership role. They’ll have a sense of familial pride and loyalty that will drive them to continue your legacy and keep the wealth in the family.
But this solution isn’t one that’s guaranteed to work.
For one thing, you may not have any relatives who are interested in carrying on the business. Or a would-be successor may not have the skills and experience required for the task. Just because someone is related to you doesn’t mean they’ll do a good job at continuing on the family business.
Ideally, your heir should be someone who has had a very active role in your company over the past several years, already. You should also establish a clear plan to avoid jealousy and confusion over roles if you have multiple potential successors.
Hand the Reins Over to an Employee or Someone Else You Trust
This might be your next best option if you don’t want to sell your business to a stranger but don’t have any qualified family members, either.
Just make sure that you carefully communicate your plan and reasoning to the rest of your team when you inform them that you’re appointing someone new to take your place.
Select someone who has extensive experience in your industry and perhaps even someone who’s already worked with your team for many years. You can trust that such a successor will have your company’s best interests at heart.
Succession from within is ideal because it gives you the chance to see the level of commitment and the growth potential of a prospective successor.
Sell Your Business to an Outsider
You can completely dispose of your business for cash if you’re ready to cut all ties with it and use the money to fund travel or your retirement.
You’ll likely find it bittersweet to sell your business to a complete stranger. It’s hard to let go of all your hard work, especially when there’s a risk that the new owner will change the way things are done. But this is a liberating option when you don’t want to be consulted about the company after ownership has passed on.
Sell Your Share to Your Business Partner or Company
If there are multiple partners or shareholders in your business, you may simply be able to sell your shares back to one or all of these key people.
When one of multiple business owners suddenly dies, the remaining ones are usually left footing the financial burden of buying back the portion of the company that was left behind by the deceased.
Most companies take out low-cost life insurance that will help them afford the purchase and pass the proceeds on to the surviving family members.
This is a good plan to have in place in the event of your untimely death so that your company and family aren’t left financially-strapped.
Liquidation is a last-resort option only when it’s apparent that you won’t be able to successfully transfer ownership of your business. It will cost you money to itemise and sell your assets and make sure employees are paid up before you shut down, but liquidation is your only option when you can’t stay financially afloat.
However, creating a solid succession plan now could be the key to helping you get your business matters in order and keep your company in good shape with a low risk of liquidation.
It is crucial to get advice from an experienced accountant about any form of business succession plan.
Contact Nitschke Nancarrow, experts in all aspects of accounting, financial planning, investment and business. We operate in Adelaide, Sydney, Melbourne and throughout Australia. Managing partner Kym Nitschke is available for a free initial discussion about your situation. Call us on (08) 8379 9950 or send me an email.
– Kym Nitschke
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