Every business owner, at some point, exits his or her business. For many small business owners, the bulk of their net worth is tied up in their business or businesses. In such cases, the ability to maximize and capture that value is, therefore, critical to their long-term financial health and ability to do the things that they want after leaving the business. The importance of this should not be underestimated. In addition, many small business owners have an emotional investment in their business and care about its mission and about their employees and customers. In these instances, business owners often feel like they can’t step away until they know that the people they care about are being left in good hands. Succession planning addresses all of these issues.
The most immediate obstacle to creating a succession plan is often simply not understanding the importance of getting started. A lot of people think that they can wait until they are ready to retire or want to sell the business to start the process. The reality is that for some businesses, it might take a number of years to develop and execute a succession plan; and without a plan in place, life’s unexpected events can sometimes present insurmountable hurdles for the business’s continuation and also for its ownership’s personal finances.
A common confusion is that people sometimes associate succession planning with going out of business; but succession planning is about cultivating a plan for having the business transition successfully to new ownership so that it does not go out of business if something happens to the current owner or if the current owner decides that it is time to move on to a new venture or new stage of life.
The process of succession planning should be started earlier on than many people recognize because getting started typically isn’t the only hurdle to overcome. Business partners, family members and key employees may need to be involved in making important decisions; and coming to agreement on expectations is not always as easy as might be hoped. One or more of these individuals might need to be cultivated into someone who can purchase or take over the business; or an external buyer may need to be sought and worked with over a period of a year or more. Processes and policies may need to be developed and intellectual property protected in order to build the value of the business. Financial management may need to be improved and strategic plans may need to be adjusted.
At the Kansas SBDC, we have CEPAs (Certified Exit Planning Advisors) and CVAs (Certified Valuation Analysts) who can help business owners with succession planning. The first step is to review long-term personal goals and goals for the businesses and then to appreciate how the eventual transition of the businesses fits into that picture. Our advisors can assess the current value of the business, its current readiness to transition, and determine measures that can be put in place to maximize the value of the business and improve the chances of a transition that meets an owner’s goals. Other key members of the business’s support team may also need to be involved in succession planning, e.g., an attorney, insurance agent, banker, CPA and/or personal financial planner.
If you are a small business owner, meeting with one of our Business Advisors to discuss goals is the first step in working with the Kansas SBDC on succession planning. Our SBDC Business Advisors will also connect you with our Value Builder team. The team can help you improve the value of your business as you work toward getting your company ready for its future ownership. A key goal will be to help you position your business so that when you are ready move on to your next chapter your business is as well.
For more information or to take a free assessment, contact firstname.lastname@example.org.
Laurie Pieper, Ph.D.
Washburn University SBDC
America’s SBDC Kansas