Whether retirement is imminent or a distant thought, creating a succession plan for your micro business will help ensure your stability and its survival after you leave.
Planning for succession can be one of the most difficult and challenging tasks for a small business owner. Many business owners find they simply do not have the time to write a business succession plan, let alone monitor it regularly. What most don’t realise is that a succession plan should be a key part of a business’s growth strategy and risk management process.
A well–structured succession plan will help you succeed and enables you to enjoy the fruits of your labour. Most importantly, a business succession plan will give you control over how the future unfolds for you and your business when the time comes for you to retire.
Put simply, succession planning is about ensuring the ongoing success of your business through a timed transfer of ownership and control.
A succession plan should define exactly who will take over the business, when they will take over the business and how they will take over the business. It should also address a variety of financial, legal and operational strategies regarding the owner’s exit from the business. Government websites provide great examples, plans and templates to help you prepare and write your succession plan. Each plan will vary depending on the owner’s objectives, family situation, financial position and a host of other considerations.
When preparing your business succession plan follow these steps:
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1. Establish goals and objectives
It is important to have a vision and set goals and objectives for the business and you personally. Things to consider include:
- When you plan to leave the business
- Will you be completely removed from the business or do you want to stay involved in some aspects?
- The amount of income you will need to feel comfortable in retirement
- The impact that selling or transferring ownership to a family member will have on other non-participating family members
2. Identify and choose a successor
This is quite often the most difficult task for any small business owner. Given you have put so much time and effort into making your business a success, you want to know you are leaving it in capable hands. The two most common options available for small business owners are appointing a family member as the successor or selling the business to a third party. Whatever your choice, assess each candidate on their capability, commitment, determination, skills and experience.
3. Business valuation
Part of a well-thought-out succession plan is to have the business valued. A business with well-documented plans for growth, continuous improvement and not dependent on any one person will more often attract a higher value. If your business is not in this position, it is worth considering talking to a business adviser who can get you on the right track.
4. Exit strategy
Planning to let go and not be involved in the day-to-day business can be a very emotional experience for a small business owner. Developing an exit strategy will detail a schedule of exit events and timelines, which will hopefully make the process easier.
Your retirement may seem like a lifetime away, however having a business succession plan in place will really benefit you in the long run. Once the plan has been prepared, review and revise it every year or so to ensure it is still in line with your goals and objectives.
Do you have a succession plan in place or are you thinking of creating one? Share your experience and advice.