By Odee Ingersol, Nebraska Business Development Center
This is part 1 of a 3-part series on business transition. Para la versión en español, oprima aquí.
The path of a small business owner is full of ups and downs, but few things are as satisfying as being able to look back and see how far your business has come and what you’ve built. Making the decision to retire is not easy for most, and it comes with many questions that need to be answered. Namely, what will happen to the business?
Although it can be easy to get swept up in the rosy ideals of a multi-generational family business, it’s not always the picture-perfect scenario business owners might hope for. We suggest you consider the reality of what transferring the ownership of a business to your family looks like. The decision to pass your business down to a child or another family member isn’t one to take lightly.
Should you keep your business in your family?
For many small, family-owned businesses, the succession plan centers on passing the business down to the next generation. However, sometimes this isn’t what is best for the family or the business. It’s not uncommon to hear about feuds and rifts within families due to frustrations or disagreements regarding the succession plan or the process with which it is handled.
Before you decide to keep the business within the family, you should consider a few things. Is there anyone in the family who wants to run the business? Is there anyone in the family capable of running the business? If you can’t answer yes to both of these questions, you may need to consider a different plan for transitioning out of your business.
Planning
Generally speaking, you should put as much time into planning the transition out of your business as you did getting into it. You’ll want to keep your family, employees, attorney, CPA, and key investors in the loop about your plans so no one is caught off guard. Clearly communicated goals can keep you and your stakeholders on the same page throughout the business transition. It’s a good idea to lay out the timeline for your departure so everyone knows what to expect and has plenty of time to make any necessary changes. The more time you allow for your exit, the less stressful the transition will be. A minimum of five years is suggested to allow for a smooth transition.
Refer to your business plan
Although it may not contain a detailed succession strategy, you should be looking at your business plan to get a solid grasp on where your business is headed. All shareholders need to be on the same page about future goals and what will be necessary for the business to continue on its path. A forward-looking strategic plan will let everyone know what to expect in the years to come. (Let the Center know if you need assistance in updating or writing your business plan—we can help.)
Bring in professional help
Even if you’re planning to keep your business within your family, you still need to bring in key professionals to keep the succession plan on track. They include your CPA, attorney, and lender. It’s important to have these folks in your corner to help you make the best decisions for the future of your business. These professionals will help you have a solid understanding of the transition process, determine your business’s value, and ensure that everything is above board from a financial and legal vantage.
Choosing the right successor
Selecting the right successor means more than simply defaulting to the oldest child. You’ll want to make sure the successor has a genuine interest and passion for the family business and either possesses or is willing to learn the skills necessary to lead. It’s a good idea to begin training them for the role a few years before you plan to retire, allowing them to manage the business before you transfer ownership.
Owning a business comes with many responsibilities, so it’s best to ease your successor into their new role. Not only does this give your successor a chance to learn their new responsibilities, it gives you the opportunity to get used to the idea of retirement—something many struggle with. Small business is incredibly personal, and this extended exit gives your employees and customers time to adjust to the idea of your retirement, while still knowing they’re in good hands.
Gifting vs selling
We would do anything for our families, but is it smart to give your business to them? The answer is complicated and hinges upon many variables. There are tax implications to either giving them the business or selling it to them or to an outsider, and a licensed CPA can help you choose the path that will be most beneficial to you, your successor, and your business.
Starting a business isn’t for the faint of heart, and getting out of it isn’t either. After years of dedication and sacrifice, we know how important it is to see your business continue to succeed even after you’ve chosen to step away. Whether you choose to keep your business in the family or sell to an outside buyer, you don’t have to go it alone. The Nebraska Business Development Center can guide you as you navigate the next phase for your business.
