Supply House Times
www.supplyht.com/articles/97921-do-you-have-a-succession-plan-in-place
Scott Thompson

Do you have a succession plan in place?

Looking ahead.

July 11, 2014

Most business owners agree they must plan to pass on their business. Most business owners also admit they have no such plan.

How do you make sure you have such a plan?

According to Manufacturing & Technology eJournal,“An estimated $6 trillion of personal wealth will be transferred over the next 10 years consisting primarily of privatively held or family-owned businesses. Once the founder is gone, too often the family business gets squandered away.”

My grandfather sold his patented cleaning solution door-to-door to business owners. He was a successful entrepreneur until one day he was hit by a car crossing the street and died. My family squabbled over how to run the business, fired executives who ran it better and eventually sold the company for a pittance.

Key to the collapse: My grandfather failed to implement a succession plan for his business and patent. A business owner can avoid many of the pitfalls my family faced simply by planning ahead.

The planning takes time and work. You need an expert team in place. You need a corporate attorney, an estate-planning attorney, a certified public accountant with vast experience with business owners, and possibly a valuation expert and a wealth manager specializing in the unique needs of business owners.

These experts help you pay attention to four aspects of the business:

  • Maximizing the value of the company;
  • Planning for the foreseeable issues;
  • Planning for unanticipated catastrophic events;
  • Planning to reach your future goals.

Different exit strategies meet different objectives for entrepreneurs. Selling to a third party fits owners who want to monetize some or all the equity in the business. Selling to a strategic buyer, who may look to beef up its own operations by adding your company, usually results in a higher payout and a quicker exit. A sale to a financial buyer may result in a lower payout and a slower, more transitional exit. Transferring the business to a family member works when leaving a legacy matters more than maximizing the value of the company on exit.

Selling to a management team or management buyout can provide a quick, confidential exit at a fair price, though likely not at the highest possible price tag. Equity or debt, or both, finance this strategy, since capital providers like to see a management team staying invested in the company.

Most entrepreneurs like to consider liquidation/windup, or the sale of a company’s assets to settle outstanding accounts before the company dissolves — a last resort. Unfortunately, it happens more than most realize.

Defining your succession process involves several steps:

·Set your goals both from owner and family-member standpoint. Get the family actively involved. Realize after a sale, family members often live a lifestyle they may not have the money to keep up.

·Determine likely management succession. If the succession is family-oriented, will key management work for the other family members? If the company sells, will a new management retain existing supervisors and other employees?

·Implement the plan. Many times, completed succession plans just sit ignored and forgotten on a shelf. Your expert team helps ensure the plan’s development and implementation.

Your exit plan should include three objectives: personal financial security; maintaining harmony within the family; and getting maximum value for the business. Don’t end up like my grandfather and his family. Plan now.

 

Author bio: Certified retirement-planning specialist Scott Thompson is the co-founder of Thompson Wealth Advisors, a North Carolina-based registered investment advisory firm that specializes in helping business owners maximize the value of their businesses and preserve their personal wealth. Visit www.thowealth.com for more information.

 


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