Tips For Planning Your Small Business Succession

September 17th, 2013 by

As a small business owner, it isn’t easy to hand down the reigns of your business to somebody else. Especially if you’ve spent your entire career developing your business’s current status, it can be hard to watch someone take over. However, this is hardly a new step in the business cycle. For years, owners have been passing on their small businesses whether it’s a family run store being inherited by the oldest child or a powerful Wall Street firm where shareholders have hired fresh new management. A change as impactful as these can have powerful results. Without proper succession planning many businesses fail shortly after the new management has completely taken over. This is why it is important to start succession planning for your small business as soon as you possibly can.

 

Establish Goals For Your Small Business

Before you even start getting others involved, it is extremely important to think about all the goals you have for your business after the succession has taken place. How will the change effect people such as your customers, employees, suppliers, and shareholders? Do you have any other partners in the business or are you the sole owner? After you leave, do you still plan on working for your firm part time or are you completely removing yourself from all operations. It is important to keep these things in mind before starting the succession process. Think about where you want to see your business in the distant future and set your goals accordingly. Write them down and implement your plan accordingly.

 

Choose Who Your Successor Will Be

To some businesses (such as the aforementioned example of a family business) this decision will be easy. Many families already have a predetermined successor in line, such as a son or a daughter who were particularly involved in the business since they were young. However, many small businesses aren’t blessed with such as easy decision. In this situation you must to evaluate the needs of the business and how well each candidate may be able to solve those needs. In this article  business Professor Otis W. Baskin recommends that if a business is having trouble choosing between multiple candidates, a choice should be made off a recommendation from a board or a committee. He also goes on to state that it’s important to not to choose someone who is your “clone”. He states that it is “critical to realize that your successor cannot lead the business just like you.  Look for the right person to build upon what you have done and take it to new heights, not preserve your memory.”

 

Valuate Your Business

If you’re selling your business to another party, it’s important to know its fair market value. You’ll need to value your business just right because if you price too high you’ll scare off potential purchasers. Conversely, if you price too low, you’ll be losing out on a lot of revenue. The recommended route is to hire a professional CPA to go through your books and determine the market value of your business. If you prefer not to get a third party involved, there are some other options. MSN Money’s website has a discounted cash flow calculator  to help you get idea of how much your business is worth. Also, you can check out our previous blog post that contains some other tips on how to valuate your business.

Our Pittsburgh-based firm offers small business succession services among many others. Give us a call if your business ownership is changing hands.