Succession Planning Simplified for Business Owners

As business coaches, our goal is to help our clients achieve the best possible outcomes with minimal effort. Succession planning is a complex yet crucial aspect of running a business, and we want to break it down into manageable steps. This blog marks the beginning of a series on succession planning over the next few weeks.

If you are a successful business owner thinking about retirement or transitioning to a new venture, first, take a moment to congratulate yourself. You’ve reached an important milestone.

There are five main options when it comes to exiting your business:

1. Shutting Down the Business – While this may seem simple, it’s rarely in your best interest. In 2015, we worked with a client who was considering closing his business. We advised him to grow the business instead, and then helped him hire a general manager. A few months ago, he sold his business to a third party for over $10,000,000—a result he’s thrilled with!

2. Transfer to Family Members – This involves passing the business on to one or more family members.  This can be through a purchase or a gift or a partner percentage transition earned over time.

3. Transfer to Employees – This option allows you to transfer ownership to existing employees, ensuring the business stays in familiar hands.

4. Create an ESOP (Employee Stock Ownership Plan) – An ESOP is a structured plan that transfers company ownership to employees through stock.

5. Sell to a Third Party – Selling your business to an outside buyer is another viable exit strategy which can be compared to the option of selling to an individual person.

"There are no solutions, only trade-offs" – Thomas Sowell

Each of these options has its advantages and disadvantages. Your exit strategy will be unique to you, and we will dive deeper into each option in future blogs.

The First Steps in Succession Planning

Before deciding on your exit method, as a business owner, you should start with these key steps:

1. Set a Departure Date – This is not just a vague “5 years from now” goal, but an actual calendar date for when you plan to leave the business.

2. Determine Your Financial Needs – Figure out how much income you’ll need annually to maintain your desired lifestyle. Consider income from social security, existing investments, and the proceeds from the sale of the business.

3. Prepare Your Business to Run Without You – Start considering how the business will operate in your absence. For instance, one of our clients recently created an organizational chart and realized he occupied three critical roles! Over time, you’ll need to hire, train, and develop talent so that the business no longer revolves around you.

In our next blog, we’ll explore the key considerations for transferring your business to a family member.