Business Succession

Business Succession Plan Process

Published by Bob Gustafson

Goal of succession planning is to determine how much you will need to net from the sale of the business to maintain your lifestyle and reach your long term objectives.

If you need a business succession plan, you need to put a process in place. Remember that there are two sides to consider – your personal financial needs and the business needs.

You need to look at succession planning from both the personal and the business perspectives because the two are sometimes inextricably linked, especially when it comes to smaller-sized business.

Understanding the personal side of the equation

When you started your business, what was your primary intention? Most likely you did not start your business with the intention of maximizing the value at some future date.

In reality, you started your business to earn an income to raise a family, support children, provide retirement for yourself and perhaps provide support to charitable endeavors. For most, starting a business is simply a mechanism that can generate money for you to build your personal life – nothing more nothing less.

Knowing this helps with the timing and advisability of the sale.

There is a lot that goes into answering this question and most business owners don’t consider the magnitude. Some of the things we look at include:

  • Forecasting personal expenses
  • Integrating family goals such as education or a second home
  • Integrating social security
  • Helping aging parents
  • Building wealth to transfer to children or grandchildren
  • Creating an estate plan
  • Accounting for taxes
  • Addressing insurance needs

We also consider more complex situations such as:

  • How do you equate your estate if one child is in your business and the others are not?
  • How much are you going to need to invest in the business to make it grow?
  • What risk to your personal life could the investment make if it were to fail? Can you absorb the loss?

What about the mental or social aspects such as:

  • What will you do with yourself at retirement? Many business owners suffer seller’s remorse or go into depression when they sell their business and retire. We get our satisfaction in life from our business. We have a certain social standing as business owners. When that goes away, so does our sense of self-worth if we are not prepared.
  • Will your retirement affect your marriage? When one spouse is working constantly and is suddenly home all the time, it disrupts a balance that has existed most likely for decades.

Succession planning is complex. Some small business owners need the proceeds from the sale to retire comfortably. Others may not be in that situation and simply want to exit the business while leaving it in good hands. But in either case, understanding what decisions you need to make need to be considered years in advance of putting your business up for sale.

Forming a team of advisors

To begin the process, we determine how much money you need net of taxes from the sale of your business. This is the starting point for determining what you need to do for the business to achieve that number.

Then we figure out the current value of the business to see how much you will need to invest to grow over the years to make it worth what you need.

This is where you need to bring in the team of consultants. You can’t do this alone. You need advisors to assist in and provide guidance in the process. Some of the consultants you may need access to include a CPA, Business Attorney, Business broker or a M&A consultant, lenders/financiers and insurance professionals.

You may also need to bring in experts and advisors in functional areas if you don’t already have these members on your team. To help you grow your business, you may need a CFO, COO and sales and marketing consultants.

And to help with the mental and social aspects of exiting your business, you may want to consult a business psychologist or family therapist.

As a comprehensive financial planner, I can help you put valuable employee benefits into place to attract and retain employees. We can create and manage benefits such as 401(k) and other types of retirement and savings plans for your employees. We can also help you with varying insurance programs that may be necessary such as  key man insurance and insurances that are part of a buy-sell agreement.

Succession planning is not a turnkey solution

Like many strategic plans, you can’t just set it and forget it. Once you have your exit strategy in place, set milestones you need to hit in order to successfully grow your business. That strategy needs to guide your activities for years so that you and your business is ready when the time comes. Review your plan annually with your team of advisors to ensure you are still heading in the right direction.

Even if you don’t plan to leave your business, unplanned exits happen. Having a succession plan ensures that the business operates smoothly and clients are serviced throughout the transition.

If you would like to know more about Triton Financial Group’s business succession plan services and process, contact us to set up an initial consultation.