If you are a business owner or part of a family business, you might have thought about what happens to the business when you leave it. Sometimes we just think about that briefly and then push it aside for another day. Too much to worry about!
Making your business succession plan is extremely important. Today we are going to learn the basics so you can easily plan for both best case and worst-case scenarios.
In a bad scenario, you might pass away while still owning your business. If you don’t have a plan in place, then your family and potentially the court system will have to make guesses about what you wanted to do.
To avoid this, you will first want to ensure you have a will created. This contains your written plans for what should happen to your business and it can only be superseded by a beneficiary.
Secondly, set up a trust. You can create a trust for your family with your business assets to potentially shield it from estate taxes and allow it to be passed down to the next generation more intact.
Third, insurance on any strategic people in your business will be a vitally important step in protecting your assets. If you have a top performing salesperson, consider what would happen if they were to pass away unexpectedly. Would your business lose significant income that year? If so, then you will want to have a “key person” policy in place to cover this event.
In the same way, if something were to happen to you, you will want to have proper insurance on yourself to ensure your family will be taken care of.
Finally, if you have partners in your business, look into buy-sell agreements. Suppose you have two partners who each own a third of the business with you. What would happen to your third if you were to suddenly become ill or pass away? To ensure you and your family would be fairly compensated for your part of the business, a buy-sell arrangement can be written and funded with life insurance.
Now that you know how to prepare for worst-case scenarios, let’s look at what you should think about doing for good scenarios where you have the opportunity to sell your company to a great buyer.
First, do everything you would do for a bad scenario that we discussed above!! Wills, trusts, and insurance are all important parts of future planning for your business.
Next, if you haven’t already, it's time to start serious forecasting. Plan out the next 2, 5, and 10 years, and how your business will be functioning along the way. Identify opportunities your business has and gaps that it fills, so it is clear to investors that your company is a great buy.
While it might sound odd, another planning item to tackle is how to work yourself out of part of your job. What processes and small tasks are you handling today that you can start to outsource? You want your company to be able to run through day-to-day work on its own and leave you free to manage higher-level decisions.
An outside buyer might be much more interested in obtaining your company if they will be able to immediately make profit from it without having to immerse themselves in the minutiae of mundane tasks.
Finally, never stop learning! Continue to improve your business knowledge through reading. One recommendation to consider is Built to Sell (by John Warrillow) which is a fable about a service business built like a product to sell. Traction: Get a Grip on your Business (by Gino Wickman) can also help you learn how to create a business that doesn’t need you!
What are you waiting for?! It’s time to get your business succession plan in order and your business running on its own. You’ve got this!