R. I. S. K. S. for Not Preparing Your Business Ownership Transition Plan

Reduce risks

Most business owners are oblivious to potential risks  by not properly planning the transfer of their business when they decide or are forced to exit.  Unfortunately we are all mortal and exiting your business is not an option it is an eventuality. Lack of planning can jeopardize the future of your business as well as the financial security of your family and your employees. The consequences of not preparing a Business Ownership Transition Plan can be summarized in the acronym RISKS.

RETIRING life can be expensive. Will the net sales proceed of your business allow you to afford a comfortable life after you stop working? Do you know how much money you will need to net, from the sale of your company, to accomplish your financial goals? These are important questions you need to find answers to.

You have first to decide what you will do after exiting your business. A lot of business owners retire and then realise that, playing golf every day can be boring, being with your partner all day can be difficult, as both of you have lived an independent life so far, traveling is costly… you should decide if you still want to keep an occupation. When you have decided what to do with your life after business then you have to make sure that you will be financially able to live out your years in comfort. Do not wait until it is too late to find realistic and adequate responses to these challenges.

Find out if your company is sellable by taking the “sellability score” now! it is free, confidential and only takes 13 minutes of your time.

You should figure out if you need to make any adjustment to boost the value of your business.

ILL-PREPARED successors. In order to plan for the continuity of your business, irrespective of the anticipated timing of change of leadership, you should formally start to think about what would happen if you were not able to run the business for an unexpected reason, like illness for example.

Who is next is critical for the survival of the business. The earliest you start the selection process the most successful the leadership transition will be.

If you consider a family member to take over you should have a conversation with him/her to verify that he/she has an interest in running the business. More importantly you should make sure that she/he has the qualities required to be an entrepreneur and will be accepted by your employees as the next leader. If he/she is not part of the business yet, bring him/her on board, as soon as possible, to prepare him/her for the job. It will require a lot of training and coaching. Family dynamics often present challenges and concerns not found in other businesses. A lack of planning can result in strained relationships between those who are and those who are not involved in the day-to-day operations of the business. Your family harmony, legacy, and financial future depend on making sound business decisions today.

In your evaluation you should also consider if a key employee, non-family member, or somebody you know outside of your business (working for a competitor for example) may be up to the job. When you decide to retire, your family may still own the business, be non-executive board members, but appoint a competent CEO to run it, on a day to day basis, or you can decide to sell the business to that person.

SELECTING the wrong  business transition options – Last minute transitions driven by burn-out or unexpected  events such as disability, illness, or death can be damaging to the business and limit the options.

If you do not have a continuation or succession plan you run the risk that your company will not be able to continue without you. This places your business, and everyone dependent on the business for their livelihood in difficult positions. This risk also decreases value in a buyer’s view point.

Reflecting on your future and the one of your business will help you to regain focus and make the right decisions early enough to communicate your intentions to your business’ stakeholders and your loved ones.

Taxes can dramatically reduce your net proceeds from any sale, even in an owner-financed scenario. Fortunately, there are sale structures that can minimize the tax burden, but time and planning are required to achieve this.

KNOW what to expect or risk being taken advantage of by sinister potential buyers – Do not expect  that the sales process is all about waiting for someone to approach you and filling in  bunch of paperwork to close the deal. You need to be proactive. You cannot rely on your common sense and your experience of running your business. Planning an exit requires new skills and a different perspective, it is seeing your business from a potential buyer viewpoint. It can be paralyzing to look at such a big challenge, so you should break it into bite-sized. One huge task turns into 12 easy steps:

    1. Define your personal and business goals
    2. Create three teams: Family, Business, Experts
    3. Review your financial situation: Insurances, pension…
    4. Find out the estimated value of your company and plan the value enhancement tweaks required to help you meet your goals
    5. Understand your exit options
    6. Implement the plan to maximise the value of the business
    7. Review the legal aspect of the business to make sure that you will not have last minutes glitches when you decide to pass the baton
    8. Maximise and plan taxes; capital gain, income and inheritance
    9. Optimise the estate
    10. Plan the after business
    11. Communicate to all stakeholders
    12. Manage the transition

SELF-EXAMINATION you need to prepare yourself, mentally, for a new social status. Your personal identity is narrowly intertwined with your business identity. You need to determine how to extract yourselves from the business and what your new image will be.  Being a business owner is who you are and who you have been for years. It is reassuring, it gives you pride and a feeling of self-worth.

Losing this social status is extremely painful and it will take you a long time to find a new identity. Separating yourselves from the business is a process ensuring that you are mentally and emotionally ready to leave your company. It will help you find other activities or interests where your talents can be valued by others to regain pride and self-worth. If you do not do it you are at risk to see your intellect declining rapidly and your joie de vivre disappearing as you will be soon forgotten by the active world.

Are you one of the millions of baby boomer business owners who are looking to transition the ownership of your business to others during the next decade? We encourage you to develop and implement a transition plan 3 to 5 years in advance. Planning your exit will help you to step back, step away, reassess and have a new perspective in life. Successful business owners start succession planning long before they are ready to leave their business. It is never too early to start work on an Exit Strategy. The most successful succession plans are initiated years in advance. When Exit Planning is left too late, the failure to plan ahead can lead to disaster.This takes time but is worth the effort.

Create a business ownership transition plan and prepare for what is likely the largest financial transaction of your life.

If you would want to know more on how to transition out of your business and would want to explore what you should do please do not hesitate to call Jean-Bertrand de Lartigue on +44 1656 766 363 or e- mail him at JB@macint.co.uk

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