There are only a few certainties in life; death, taxes, and one thing few successful small business owners realize or want to realize, the day they will be faced with perhaps their biggest dilemma, “How do I exit and when?” In this regard, it is not unusual that few successful small business owners understand the importance of having a good succession plan or exit strategy.
The failure of business owners/ founders to plan effectively for succession can lead to an unfavorable and painful transition. If the business is a family-owned business, it may lead to a loss of family control. These undesirable outcomes can be avoided if the business owner is willing to step back from the business and look into the future.
Once the small business owner has made the initial decision to leave the business, there are some important considerations to keep in mind before making the final decision:
- Succession planning takes time. Building a successful business doesn’t occur overnight, and equally so, exiting a business will take time in planning and execution of the exit strategy.
- Potential stakeholder barriers to the succession planning process. In every business enterprise there are a number of “interested parties” or stakeholders who have an interest in the success or failure of the business. These stakeholders include the owner’s spouse, family, employees, clients, and peers. Each may have a particular reason for the small business owner not to leave the business. Therefore, it is important for the business owner to understand what their concerns are and that these concerns can be major factors in the final decision on leaving.
- Succession planning occurs in stages. A good way to view succession planning is in stages. The initial stage is a period of anticipation and preparation. The second stage involves the actual handing over control and leadership. The final stage occurs after the transition has occurred and there is a period of adjustment and reflection by the small business owner.
Within each of these stages, the business owner is involved in the development of a number of important plans that may impact the nature and timing of the final exit strategy:
- A strategic business plan: This plan allows the business owner to consider the future financial strength and potential market growth of the business.
- A personal financial plan: Helps determine the current financial strength and future financial goals of the business owners.
- An estate plan: This plan helps the business owner to determine current and future tax consequences of selling the business.
The final steps in the succession planning process involve the actual implementation of the succession plan:
- Identifying and selecting a successor: Determine the best qualified and best suited match as your successor. Ideally, this person understands the business legacy you have built and will be committed to your employees and your clients.
- Transition period with the chosen successor: Establish a formal phased-in “passing of the torch” period in which the business owner introduces his successor to key employees and clients.
- Handing over the keys!!: The final and official change in ownership and leadership.
- Monitoring the progress of the successor’s development: The periodic checking with the chosen successor to offer any assistance or advice you may give.
These steps may take years to successfully implement. Thus, it is important for any small business owner contemplating leaving his business to start planning now. The good news for the small business owner is that there is help with planning an exit strategy or succession plan. Talk with your accountant, lawyer, and banker. Each can provide specialized advice and services. Also, feel free to contact a Georgia SBDC Network consultant.
(Source: :Lloyd Atkins, SBDC Georgia State University Office)