Succession planning means creating a process by which you can exit your business and someone else will take over. Often, people think of passing the business on to someone in the family or a trusted employee, but that doesn’t have to be what happens. You could opt to sell the business to someone else, close the doors altogether via a long-term plan, go public with the business and live off of shares or turn the company into a charitable organisation and let a board take over.
Whatever is in the future for your business, here are six reasons you should start planning your exit now.
1. Things don’t always go according to plan.
Business owners who believe someone in the family will take over one day often don’t put a lot of work into their plan. But you can’t rely on the fact that you have a family business and it’s been passed down over the years. First, things are more complicated than they were decades ago, so you must take time to ensure all your paperwork is in order. Second, you have to check (and check again as time passes) that the person you have in mind really wants the business. As a business owner, you should always be planning to exit your company and changing your plans as situations evolve.
2. Leaving your business is often harder than you think.
Most business owners simply can’t step away from a business one day and say they’re done. Many entrepreneurs feel personally tied to the brand, the people or the product, and if they don’t have a strong plan in place, they may not feel they can leave without it all falling apart. Even setting personal emotions aside, leaving a business requires that you tidy up all legal and financial matters. It can take time to get your name off all contracts and handle refinancing any debt, which is why planning at least a year ahead of time is important.
3. Planning ahead lets you take care of employees.
Acting too hastily can put your employees at risk, which is something many business owners want to avoid. By planning months or years ahead of time, you can ensure your employees are as ready for the change as you are; that might mean a guaranteed position under the new owner or simply time to get a different job elsewhere before the business closes.
4. You might want to safeguard your personal brand.
Leaving your business in the lurch could be bad for your personal brand. Without the right planning, whoever takes over your company might not be able to deliver the service your customers are used too, and if you close the business outright without ample notice, clients could deal with major inconvenience. None of that bodes well for your personal reputation, which you might hope to leverage if you’re exiting your business for other opportunities.
5. It takes time to mentor a replacement.
Mentoring someone to take your place can take months, if not years. In the case of a family-owned company, your child or another relative might need to work their way up in the business. Even if you hire someone with plenty of experience, it takes months for outside professionals to learn all the nuances of a different company.
6. Your business might need work for your succession plan to be viable.
Finally, if your succession plan involves selling your company or going public, you’ll have some work to do. You can talk to a broker today about this option, but don’t be surprised if they give you a list of tasks that need to be completed to ensure the best value for your company.
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