Don’t leave your business unprepared.
Business succession planning encompasses proactive planning for a business owner’s retirement and preparing in case of the unexpected, such as death or disability. Good succession planning can help ensure your comfortable retirement and your business’ continued success. This process quite literally puts the future of your business at stake. For that reason, you will not want to proceed with any misconceptions or false information. Here are five dangerous myths about succession planning that small business owners can’t afford to believe in:
Myth 1 – Business Succession Planning Can Wait Until Later
The single biggest mistake you can make is waiting too long to begin succession planning. Working through the details when you have time on your side is always preferable to making rushed decisions while in crisis mode.
Myth 2 – Business Succession Planning is an Unnecessary Hassle
It is tempting to believe that when you’re ready to move on eager buyers will swoop in to offer huge sums for your business or your children will “step up” and take over. But, this is a gamble. The most successful succession plans occur over a period of time and include transition planning, such as grooming of a future leader. Furthermore, if you are looking to transition ownership to your children, gifting or sale of a percent interest over time can permit the next generation to become accustomed to their new role and accompanying duties with your guidance. Additionally, even if a willing buyer does appear, they may offer far below market value. Succession planning is important no matter what you plan to do with your business once your tenure is over.
Myth 3 – Business Succession Planning Handles Itself
Do you know who your successor will be, and is that person ready to take the reins right now? Many small business owners have vague ideas about succession but lack the details the process requires. Succession planning is designed to get the specifics ironed out early and to put plans/preparations into action before it’s too late. Unfortunately, research shows that only 30% of family-owned businesses survive to the second generation, and even less survive to the third generation or beyond.
Myth 4 – Business Succession Planning is about Equality
The purpose of succession planning is not to ensure that every heir gets an equal share. Rather, the purpose is to ensure that successors are treated fairly, that those who invested more in your business get a greater stake in return, and—perhaps most importantly—that those who have the skills and ability to continue a business successfully are put in a position to do so. If a business is simply left equally to children, those who have invested years of their life building up the business (what we like to call “sweat equity”) may see the business fail when siblings who lack the knowledge and experience needed to run the business come into the picture.
Myth 5 – Business Succession Planning Cuts You Off
This is perhaps the most counterproductive myth about succession planning. The reality is that there are legal mechanisms available that can ensure you continue to have input and draw income from the business as you transfer ownership. Without a comprehensive plan in place, it’s much more likely that you will be entirely disconnected from the business you built. By proactively planning, you maintain control over the process.
The reality is that early and careful succession planning is the only way to balance the interests of yourself, your business, and your successors effectively. The darker reality is that succession plans often become necessary for unexpected reasons like death or illness. No matter what stage you’re at in business or in life, a succession plan is essential. Partner with the attorneys at Schloemer Law Firm to be working through the details that matter most.