You've spent years and a good deal of money to get your business off the ground and to grow it into a successful enterprise. But have you thought about who will take over when you die or retire? Most business owners think they are too busy in day-to-day operations to answer the question, but it should be a priority.
Often the stock answer is the kids, but statistics show this option is rarely successful. The U.S. Small Business Administration reports that two-thirds of family run businesses fail to make a successful transition to the second generation. Less than 15% survive to the third generation.
Here are steps you can take now to help make a smooth transition:
- Identify your replacement team and start grooming the new managers. Evaluate your current managers, including family to determine who are the most capable candidates.
- Communicate with candidates to ensure that they have the desire to take over the business.
- Analyze the business. Determine how and why the business works. If your role is critical, pay special attention to the talents of the person you have identified to fill it.
- Place a value on the business by enlisting the help of a valuation professional to determine what your business is worth. There are several valuation methods such as discounted cash flow, book value or hiring a professional appriser.
- Draft a buy-sell agreement, which details the terms of transfer between you and your successors or partners.
The best time to start working on a business succession plan is now, while things are going well.
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