As a multiple business owner Green Valley Tax and Meyers Financial Services for 30+ years succession planning has always been a issue that I needed to solve, no one in my family was interested and I needed to find out what needed to be done. Do I fine some to take over, the who, what, when, and how questions were always the elephant in the room.
Many people think that small business owners are always looking for ways to expand their businesses. But sometimes, the best thing you can do is pass the torch, or at least some part of it.
Whether that means selling your business to allow you to retire early or finding a way to leave behind a long-lasting legacy, you need to develop a plan that will enable everyone involved to be on the same page. If that sounds like something you'd be interested in, keep reading for some helpful tips on planning for this type of transition.
What is Succession Planning?
Succession planning is a process to identify, develop and prepare potential successors for leadership roles. It's also a proactive process that aims to ensure the continuity of the organization's mission and values, as well as the business itself.
This is more than hiring the best-fit manager to ensure all your team members arrive on time each day at work. This is about carrying on a legacy. You want to consider the temperament and mindset of your successor, so they maintain the idea behind your business.
For example, if you are heavily involved in the community, you want a successor that will carry on that kind of commitment long after you retire.
Why is Succession Planning Important?
Succession planning is essential because it helps ensure that the business continues to operate smoothly, grow, and thrive. Succession planning also ensures that your hard work and investment in the company are not lost when you leave it.
If you have a plan for your business, then you can have peace of mind knowing that everything will continue without interruption after your departure. If there's no plan in place, however, things will likely fall apart without someone at the helm driving them forward.
Most small business owners hope to sell or receive payments from their company long into retirement. If you do not have a qualified and capable successor in place, you cannot rely on that future income to see you into your golden years.
When it comes to succession planning, there are a few key signs that you're ready to start thinking about your business's future.
- When you're ready to retire - If you're an entrepreneur who has been working on their own for years and years and now feels like their time is up, then this may be the right moment for them to hand over the reins of leadership to enjoy retirement in peace.
- When there's a successor in mind - If someone else has already been identified as capable of taking over when needed, this could be another good sign that succession planning should begin sooner rather than later.
- When selling/acquiring another company - While not every small business owner wants or needs their company sold or acquired by another firm during their lifetime, those who do should make sure they have everything squared away before doing so.
Where Do You Start?
This is the hard part of small business succession planning. Even if you already have a clear idea of who you wish to appoint as your successor, it helps to go through the practice of considering other options. This not only gives you peace of mind you have done your best, but demonstrates to the rest of the stakeholders you have taken every precaution to ensure a smooth transition. Some key steps include:
1 - Identifying potential successors and assessing their readiness:
Once you've identified your preferred successor(s), assessing their readiness for the role is important. This can be a team effort, as multiple people may be involved in making this decision. In addition to considering each candidate's strengths and weaknesses, think about whether they are willing to take on the role and how much training or skill development would be required for them if they decide to accept it.
2 - Developing a comprehensive succession plan that aligns with the organization's goals and values:
Succession planning should be part of the overall business plan. To develop a comprehensive succession plan that aligns with the organization's goals and values, you need to:
- Take a long-term view of your business (at least 5 years).
- Involve critical stakeholders in the process.
- Review it annually or whenever there are significant changes in your company, such as an acquisition or merger, new product launches, or changes in leadership.
- Consider your mission, vision, and values in comparison to the philosophy of your chosen successor(s).
3 - Communicate the succession plan to key stakeholders, including family members, employees, and customers
As you begin to plan for succession, it is crucial to communicate the process with key stakeholders. This includes your family members, employees, and customers.
It's also essential to think about other stakeholders in your business who may not be as obvious but still need to know about the succession plan. These could include vendors or suppliers who will impact how smoothly things run when you are out of the picture. The more people prepared for the transition, the easier it will go in the long run. This also empowers your successor because you demonstrate public approval of their ascension.
A Closter Look at the Succession Process
As a small business owner, you'll want to ensure that your business is protected, and your family enjoys the benefits of its success. This means looking closely at tax implications, financial repercussions, and long-term money management. In addition, you want your successor to benefit from your hard work just as much as your family from future paid vacations!
If you have not yet created an estate plan or updated one in recent years, it's important to do so now, especially if there are any questions about how much money should go where after death (or even during life). Your attorney or a qualified tax specialist advisor like our team at Green Valley Tax Services can help determine what documents would best protect your assets and loved ones' interests while ensuring that taxes remain as low as possible throughout the process.
You need to remember that you are shifting your tax implication mindset. Instead of focusing on lowering your tax liability as much as possible, you are going to balance your books, so the business is more attractive. You want future successors and investors to see your business as profitable and not just a tax haven.
On that same note, keep a close eye on estate taxes. As the CEO of the small business, you will receive payments and gifts in kind that can be taxed at a higher rate. This may mean some shifting in asset protection and considerations. No matter what, you must communicate your intentions, make a plan before executing, and involve your stakeholders as early as possible.
Wrapping it Up
Succession planning is an important part of any small business owner's job, and can help ensure that their business continues to grow even after they retire. Succession planning is not just about retirement; it's a lifelong process. Succession planning isn't something you should put off until later. It's better to start now so that you can be prepared when the time comes for your successor to take over!
This will be a critical part of your role as a small business owner. Take the time to meet with our experts at Green Valley Tax Services. We can help outline the various implications for your taxes, assets, and other financial concerns long before you issue a public statement about whom will succeed in your company.
Let’s work together so this process is as smooth and painless as possible so you can focus on what matters most – a healthy retirement!