As a business owner, you started your company and you work hard to manage its growth. But what happens when you want to retire? Who will lead the company? How will you get your equity out of the business? If you’re like many of your peers, you know you need to prepare for the endgame, but day-to-day operations can easily take priority.
It’s no surprise owners often don’t begin succession planning until they experience a major life event such as a personal illness or injury. It can take an unexpected situation to cause a person to consider how their business would survive without them. For owners of closely held companies who see their business as a primary source of retirement income, succession planning is essential.
It’s smart to begin an exit strategy at least five years before you plan to retire. Earlier is always better. The goal is to develop a strategy that’s a good fit for you and your business. Then, revisit it as your company and key players change.
An exit strategy may involve an absolute or phased-in change of ownership. Options include:
- Selling the company to an outside interest
- Selling or passing the company to employees or family members
Any direction you choose will involve nuances, including insurance and tax implications. Your decisions may be influenced by the number and nature of key employees and partners, as well as the role of family in the business.
By planning early, you’ll have time to identify and groom potential leaders within your company or look outside if needed. A strong succession plan can work hand-in-hand with recruiting, developing and retaining valuable employees and future leaders for long-term business viability.
That idea of transferring ownership to employees isn’t new. One option, Employee Stock Ownership Plans (ESOPs), provides a structured purchase of the company by employees.
For a good starting point and resource throughout the planning process, consider talking to an experienced banker you know and trust. Depending on the type of plan and the expertise needed for a smooth transfer, he or she may refer you to an accountant, attorney, wealth manager, or merger and acquisition specialist. You’ll benefit from a transition team that recognizes the importance of your exit strategy to your well-being, that of your company and the people you employ.
Keep these tips in mind:
- Begin planning early; at least five years before you intend to retire
- Consult transition experts
- Find a strategy that fits you and your company
- Evaluate insurance and tax implications
- Revisit the plan often