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Succession Planning For Small Businesses
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Article 2: What Is Succession Planning?
The process of succession planning can be divided into two main tasks:
- Planning for the ongoing operation of the business
- Planning for the liquidation and distribution of the business’ resources
For most family and closely held business owners, proceeds from the sale of the business will represent the primary source of retirement income and cash flow. This is why the business succession, estate and personal financial planning processes should be done together.
You should work closely with succession and estate planning professionals to help ensure that you’ll have a comfortable stream of income to support your desired lifestyle during retirement. This will involve addressing such issues as tax planning, investment management and retirement and lifestyle planning.
Narrowing it down further, the broad topic of succession planning should be approached from two different perspectives: ownership succession and management succession. The former refers to the transfer of actual business ownership, while the latter refers to the transfer of management responsibilities to those who will be making day-to-day business decisions.
On the ownership side, “the primary value in most small businesses lies in the owner’s relationships with clients, vendors and other key partners,” says David Geller, principal of GV Financial Advisors in Atlanta, Ga., a financial planning firm that specializes in working with private and family business owners. “To maximize the value of the business, there must be a structured plan for transitioning those relationships.”
On the management side, Geller recommends that you identify key employees and make sure they’re on board with your plan.
“This might mean offering them an equity stake in the business as part of the succession plan.” Then you can identify and train your successor management team.
A few more considerations:
- If yours is a family business, participate in open and honest communication with all family members. Succession planning requires integrating the needs and expectations of the business owner, his or her family, key management and other partners.
- Make succession planning a careful, intentional process. If everyone understands the process and their role in it, they’ll feel the most comfortable.
- Obtain objective insights, perhaps from outside advisors hired to assist in the process. They can offer input on how well you are managing the process, how well prepared successor management is and the legal and technical issues involved.
Succession planning should start as far in advance of your planned departure from the company as possible. Five years should be considered a minimum, experts say. This will allow not only for a smooth transition of the business to new ownership and management, but also for careful anticipation and planning for how you can reap maximum financial rewards.
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Succession Planning For Small Businesses
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