When should you start succession planning for your business?
Today. Start succession planning today.
You may be thinking “I’m busy running my business right now” or “I’m years away from retirement”, but succession planning is an important part of owning a business. Plan thoroughly and early to help reduce taxes and mitigate the impact your retirement has on the business. The transition can take up to five years to complete, sometimes longer depending on the size and complexity of the business. Even if your business is just getting off the ground, a solid succession plan ensures you are also prepared for the unexpected – things like illness, accident, or death.
What is the future of your business?
Will you transfer ownership of the business to a family member? A non-family member? Will you sell the business? Close the business?
This is the first question you need to answer in your succession plan. If you will transfer ownership, the next question is to whom? Choose your successor early. It benefits you and the person who will take over the business. The earlier you decide on a successor, the more time they have to prepare and be involved with the business before taking over.
Develop a written plan and a clear timeline for the transition.
In your plan, include a full review of your business and finances, name your successor, determine the value of your business, and outline when you plan to retire. For owner-managed businesses the transition away from the business usually takes longer.
Of course, planning for the expected is the easy part. What your advisor will help you think about is the unexpected. What if you fall critically ill, have an accident that prevents you from work, or pass away? Your succession plan ensures the continued success of the business and mitigates the risk to your family and business stakeholders.
What if you didn’t prioritize succession planning?
The person(s) left in charge of the business after your departure may not have sufficient knowledge, leadership abilities, or practice management experience necessary to run the business in your absence effectively. You can also alienate potential successors by not committing to a plan.
In the case of your death, without a succession plan, your family may have to close the business and could be left without sufficient means to pay the capital gains tax.
Worst of all, if you exit the company without a plan, you risk leaving your business in a position where client needs aren’t met to the standard they expect.
The bottom line on succession planning
Succession planning ensures a good business legacy, provides financial security for your family and the business stakeholders and helps you prepare for life after your business. Talk to your Assante advisor today about making sure your business is set up for your retirement.