How will you leave your business? Will you walk out on your own? Or will they
carry you out feet first? Either way, you need a plan for winding things up and
passing them on.
Two basic concerns — or really one
Whether you plan to
retire from your business or you plan to work until you drop, you need to plan
for two things:
Who will succeed you in running the business?
How you will get your hard-earned value out of the business, either for
yourself at retirement or for your heirs at your death.
Now these two concerns are really one. Because your talents and hard work are
so important to the business, your departure could seriously impair its value.
A good succession plan is therefore essential to preserve the value for yourself
and your family. Without such a plan, your family could be left with very little
if you die.
Building up value
The reason for this is that up until now,
the value of your business has been you. You’ve worked hard, taken risks and it’s
paid off. The business has grown, but it’s still your drive that keeps it going.
It is your whole life and, aside from a nice house and a couple of cars, it’s
all you have. It’s time to cut that out! This means two things: 1. You need to
start building some value into the business that is independent of yourself. This
means grooming a successor or a management group that will be able to carry on
the business when you depart. This may mean giving shares of the business to these
folks as they take on added responsibilities. What’s in it for you? You or your
heirs will be able to cash in on this independent value when you are no longer
in the business. 2. You need to start building up assets that are separate from
the business. This may mean diverting money into a retirement
plan or it may mean selling shares of your business to others–perhaps to
the people who will one day take over the business. If you’re, lucky you’ll get
a buyout offer from a large corporation with unlimited supplies of cash.
Easier
said than done
Now, it’s easy to talk about grooming successors and creating
value, but what does this all mean from a practical standpoint? Well, you are
probably the only one who knows what it will take for your successor to succeed
in your business. As for creating value, answer the following questions, and we’ll
take you to some common answers that could apply to you. 1. What is the legal
form of your business?
(Choices: Sole proprietorship, partnership, corporation)
2. How will you transfer your business (or share of the business) to your successor?
(Choices: Give it to someone in the family; sell it to someone in the business,
or others)
