Business succession is often complicated, which means the earlier you start planning, the higher the chance of your business surviving with the next generation. Whether you are already thinking about retirement or not, start planning your business succession with a financial advisor.
In doing so, here are the most critical factors that you have to consider:
1. The next generation
In business succession planning, an essential thing that you have to ask yourself is: who will you be passing your business to when the time comes?
It is common practice to pass the business down to your child when you retire, and this might be your first instinct. However, what if your child doesn’t want to handle the company or is incapable of doing so? What if you don’t have children? If this is the case, consider your most trusted underling, your business partner, or an outsider that has expressed interest in buying your business.
This is perhaps one of the most challenging decisions that you have to make throughout your career. And to do so correctly means that you have to be a good judge of character. When selecting your successor, you must be fully confident that they have the same passion, motivation, and dedication as you if you want your business to keep going. Knowledge, skills, and other technical things are only secondary.
Once you decide who you want to pass your business to, start educating them as early as possible. Whether or not you tell them that they are your next successor is entirely up to you. However, it’s advisable to hold off on any explicit announcements unless you are entirely sure.
2. Method of transfer
Another significant step in business succession is deciding which method of transfer to use. The options vary depending on whom you’re passing the business to.
If you are passing the business to a family member, you can sell it to them at market value, use seller financing to spread the payment in installments, or give it as a gift. If you are passing it to a subordinate or third-party, you can go with an owner-financing sale (wherein payments are made to you in installments), or the buyer can use cash financing. You can also consider bringing in the buyer as a partner. In this type of arrangement, the buyer will then transfer most of the share capital from you.
3. The timing
The timing of your retirement is also crucial in business succession. How long do you want to hold partial control over the business while your successor takes over? Will they be ready by the time you retire? When making a decision, also consider other factors such as your age, your health condition, and your plans after retirement.
Letting go of a business after decades of hard work and dedication can be a scary and exciting experience at the same time. Hence, to retire with full confidence, start business succession planning with a reliable financial advisor and business export as early as you can.