Selling your business or retiring? Here's how to transition ownership so the business stays in a good position going forward.
Make a succession plan
The first step to ensuring a smooth transition process is to create a succession plan. Before you sell your business or retire, you should envisage a timeframe within which you will complete this. Typically, this could take anything from six months to a year depending on the complexity of your business. A succession plan is a tool that identifies and puts in place a roadmap to develop internal people with high potential to fill key business leadership positions in the company. This plan should ensure that once you have sold your small business that your employees have all the skills and knowledge they need to keep the business booming long after you have left. Before you close the door for the last time, be sure your successors have the know-all to carry the business forward.
Establish your company's true value
This has a dual purpose. Firstly, you need to get these financial facts and figures sorted out so that you can ascertain how much the firm that you have worked so hard to build is worth. Secondly, having solid data on your small business's value will help not only you, but the future management to make vital decisions in the long term. Knowing the risks, the strengths and how much cash flow your small business generates should allow your successors to work on a plan for sustainable growth. Having the valuation information will greatly help you and your financial team plan for tax implications and investment strategies as you go through the transition.
Assessing your options long before you leave
Prior to your departure you should have a clear idea of who you wish to hand your business to. You should do your research and know all your options. Do you plan to gift your business to a family member? Do you wish to sell the business? Is employee purchase something that you are keen on? Whatever the choice is you need to do your homework far in advance. Consulting with lawyers and other advisors is vital during this process as some of the above options can be costly to implement and each comes with its advantages and disadvantages. For example, if you give the business to a family member, you can ensure your legacy is continued and you will be able to stay close to the business, giving guidance when needed. However estate planning can be costly and complicated due to tax implications which can create a whole host of new problems for your family. Employee Stock Ownership Program is often a great option as it guarantees the continuation of the business under the reigns of employees who truly know your firm, plus they are likely to have a deep interest in its success. Again, this can be a complex option which is costly to implement. If you choose to sell the business to a financial or strategic buyer. This could be very lucrative for you. On the other hand, once the new owners possess the business they may choose to restructure which could result in cutting jobs or changing the company's culture and direction.
