If you have even an inkling of what comes after you hang up your hat or pass on, you’re doing better than many of your competitors. According to a CNBC report on a well-known U.S. trust company’s survey of “millionaire business owners,” nearly two-thirds of American business owners have no succession plan in place.
Principals frequently underestimate the time and expense required to devise an airtight succession plan; worse, many of those that do try to get their proverbial houses in order make common, easily avoidable mistakes in the process.
These are nine factors to consider whilst creating your plan.
- Your Business vs. Your Personal Retirement Plan
Your business is not your personal retirement plan. Your business is not your personal retirement plan. Your business is not your personal retirement plan.
Say it as many times as you need to keep it straight. And live by it — now, next year, next decade.
Just as your employees no doubt save privately for their own golden years, you too should set aside funds and assets — trusts, tax-advantaged retirement accounts — to ensure you’ll be well taken care of once you step back from day-to-day management. Under no circumstances should you assume that the sale of your company will be sufficient to fund your retirement, particularly if your business is on the smaller side or you’ve yet to commission a formal appraisal.
- Establish the Proper Business Structures and Vehicles Ahead of Time
It takes years — not months, years — to establish the proper business structures and vehicles to efficiently house your firm’s liquid and non-liquid assets. If you don’t do so with enough time to spare, you may find yourself scrambling to tie up loose ends when you should be looking ahead to post-retirement downtime.
- Letting Fear of the Unknown Overwhelm Rationality
As an entrepreneur, you know all too well that known unknowns and unknown unknowns can challenge the best-laid plans. Just as you don’t allow fear of unlikely downside events to interfere with rational business decisions, you shouldn’t let worries about a murky future impact sensible succession planning activities. Do your best to assess the risks and benefits of your strategy, then trust that your plan will play out as you envision.
- Identify the Next Generation’s Key Leaders and Roleplayers
For your succession plan to work, you need to know precisely who will succeed you — that is, who will occupy the positions of leadership and responsibility that you and key members of your generation will eventually cede. Well before setting your succession plan in motion, you need to identify these roleplayers and begin the grooming process. Even without surprises or unforeseen setbacks, this is a multi-year endeavor.
- Realistic Valuation of Your Business
Is your business worth as much as you think it is?
The only way to know for sure is to commission a thorough appraisal — a time-consuming, but essential, component of the succession planning process. Even if you don’t plan to rely on the partial or complete sale of your business to fund your retirement, you need to have reasonable expectations of the capital or income you can expect once you cede control of your firm — assuming you are not gifting your shares to the next ownership generation.
- Trying to Do Too Much on Your Own
No one expects you to devise and execute your entire succession plan on your own, nor should you try. Embrace your role as the owner (or co-owner) of the planning process — just as you embrace your role as the ultimate owner of all the other processes for which you’re directly responsible on a daily basis. It’s a sensitive and complicated concept, and one that can benefit from an external expert to help guide you. This particular process is crucial for the smooth, efficient transfer of the firm you’ve built and led for years, or decades; give it the resources it deserves..
- Philanthropic or Legacy-Building Opportunities
Your succession plan is a rare opportunity to leave a lasting legacy for future generations — and not just your heirs. If you haven’t yet done so, speak with your financial advisor about setting aside assets to endow a philanthropic fund or trust. Philanthropy-minded service firms like Asiaciti Trust specialize in charitable legacy-building; once you’ve identified a cause or causes to support, you’ll want to speak with such a firm to determine the most efficient means of establishing that legacy.
- Consult Key Stakeholders
Don’t let poor communication waylay your succession plan. Before you get too far into the process, make sure those you’ve identified as likely successors actually want to be involved. If you can’t identify heirs willing to take over management of your firm, you may need to explore other options — up to and including the sale of the enterprise. Of course, you can establish a structure to provide predictable passive income to heirs not directly involved in management, but you’ll still need to have a capable board and reliable executives to ensure continuity.
- The Timeline of Transparency
Your succession planning process needn’t be wholly transparent to everyone. Indeed, in the early stages, as you contemplate how your business will look without you at the helm, it’s understandable not to share your thoughts. Once you’ve established a clear concept, particularly in relation to your heirs, frank and forthright communication is required. Prior to any transition of control, reflexive secrecy becomes counterproductive: those in whom you’ll trust your enterprise for years to come must know what they’re getting into, and agree to their new responsibilities.
Is Your Succession Plan in Place?
Remember, most business owners have no succession plan. Fewer have one likely to withstand the test of time.
If you’ve begun the succession planning process, you’re already doing better than millions of your counterparts. If you’ve yet to begin the succession planning process, it’s not too late. As is so often the case, getting started is half the battle. Ensure that you take into consideration the points above, and don’t procrastinate on a process that’s likely to take the better part of a decade. Your peace of mind and legacy will be better for it.