And while business owners are hardwired to consider every facet in which to grow their venture, equally important is planning how to eventually step back and depart the company. Not doing so could leave a business owner vulnerable to impulse decisions that don’t set them up for success in the post-entrepreneurial phase of their life.
“You need to know what you want to get out of succession, and answer some of the bigger questions early on to know that you’re on the right path,” explains Robert Bradburn, Assistant Vice President of Wealth Advisory Services for CWB Wealth Management.
Stepping out of that managerial comfort zone and moving forward with confident succession planning can be achieved. There are, however, some crucial points of consideration that, when fully realized, will place business owners in the best possible position for the next stage of their personal and business life.
Great exits take time
Just as a business cannot begin operations without fully addressing the assets, debts, liabilities and resources that are available, entrepreneurs must also consider several different facets of their financial end goals while planning for their business’s growth and success.
“It always starts with your personal and family financial plan,” Robert explains. “You need to look at the big questions first: how much do I need each year to live my life? What do I want to do with my time, and how do I want to support my family? Is an estate or legacy important to me? How do I feel about charitable giving? What do I want my business to look like when I step away?”
With these questions examined and answered early, an ideal financial end state can be identified. Working backward from the endpoint can help solve for the variables in between that will set the path to success. This type of planning can also identify family members or relations that may have an interest in continuing on after the owner transitions away from the business. After all, in some scenarios it’s not just about the dollars and cents; it’s about family. And this all takes time.
“Generally, if you have dreams of selling or transitioning to employees, family or third parties, it'll probably take longer than expected,” says Robert. “And that's okay."
"By starting early, you're giving yourself the gift of time to figure it all out and make good decisions.”
Partner with the pros
Success is rarely achieved in a vacuum. The most successful people are able to identify a network of trusted individuals who can help them move forward and achieve their goals. Take a scan of your business environment and review the lay of the land.
“Ask yourself: who is on my professional team?” suggests Robert. “More importantly, do I have the right advisors on my team? For example, do I have a good family lawyer who understands corporate structures or has the bench strength internally? Is my bookkeeper an accountant and vice versa? Will my investment advisor be able to keep up with the plan or will they be a hindrance?”
Working with a specialized team ensures everyone is able to focus on their area of strength, which includes entrepreneurs having the opportunity to hone in on what they know best: running and growing their business. Experienced financial planners will have the right breadth and depth of knowledge for entrepreneurs aiming to plan for a smooth transition.
Plan for change
Even the best laid plans can take an unexpected turn when life circumstances interrupt, either with personal or professional detours. “Often, changes in family situations or the emergence of potential buyers will alter the strategy part way through formation and even require a restart sometimes,” explains Robert. Deals that seemed solidified could fall through or a health issue could push a timeline several years forward before a family was prepared to have these conversations.
Some strategies to help mitigate these circumstances include having a specialized business valuator available to assess the current and future value of the company. “They should be able to help you understand not only the technical valuation of the company, but also any risks you might not have been aware of that may impact the business value, how buyers will perceive it and ultimately, how a buyer will value it,” says Robert.
“There are also some important steps to take that can have some very positive tax implications for business owners if they prepare and plan properly for an exit,” says Robert. “Some of these strategies must be in place for a couple years before a sale in order to receive the benefit. Having the ability to prepare fully and early means avoiding unnecessary taxes and having the ability to take advantage of capital gains exemptions.”
A financial advisor who has been involved in the planning of your business succession strategy will also be a valuable resource as your plans pivot to accommodate new variables. “A good advisor or planner can shed some light on an otherwise dark, uncertain process,” says Robert.