Three Mistakes to Avoid When Planning the Succession of Your Business
Many small business owners are focused on running their business, rather than planning for its succession. By focusing only on the here and now, however, a business owner can set his or her business up for failure once it is time to relinquish control.
DelayThe first business succession planning mistake is delay. Often, business owners simply wait too long before making their plan. Some of these business owners draft their succession plans at the last minute, others never find the time. In order to have the best chances of success, it is important to create a succession plan early, then lay the groundwork to implement that plan throughout several years.
EqualityUnderstandably, most parents want to leave their estate to their children in equal shares. Consider a business owner with two children. One who has studied the family business, and another who has pursued other interests. It wouldn't make sense to divide the business into two equal shares between the two of them.
If you are a business owner with several children, there are plenty of ways to transfer your business to the logical successor, and still provide equal distributions of your estate to your other children. For example, you could determine the value of the business, then take out a life insurance policy that would provide a similar payout to your other child.
Waiting to TrainThink back to when you started your business, were you immediately successful? Chances are, it took you some time to learn the ropes of your business. Knowing this, it would seem illogical to through your successor at the helm of the business without properly training him or her first. Even if he or she has been part of the business since it's inception, working for a business is often far different than running it.
Several years before you plan on retiring from your business, begin to train your successor. Allow your successor to serve as your apprentice so that he or she can cultivate a mastery of the business tasks and relationship.