As a small business owner, there is one inevitability: what happens when the time comes for you to step down? How do you ensure that your hard work and legacy live on, even when you're no longer at the helm? That's where a well-crafted succession strategy comes into play.
Creating a small businesses succession strategy is a complex task, but it can be broken down into smaller steps that make it easier to tackle.
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Conduct a Business Valuation
First, you want to conduct a business valuation so you have a clear picture of the financial value of your business. You will need to repeat this process every few years to ensure accuracy.
There are a few different ways to tackle a valuation (and often, you’ll want to use more than one):
- Asset valuation - looking at all of the investments of the company
- Earning valuation - anticipating future earnings
- Market valuation - comparing the value of your business based on similar businesses that have recently sold
Partnering with an experienced small business financial planner is the most effective way to conduct an evaluation. They will tackle all of the heavy lifting of gathering data, analyzing and synthesizing it into an actionable report.
Decide on a Plan
With your business valuation in hand, you can begin looking at succession options. Often, your valuation will influence what type of plan makes the most sense, but there are other factors to consider.
There are four common options for a succession plan:
- Succeed to a family member
- Selling to a co-owner
- Selling to an employee
- Selling to another company or outside owner
Which option is right for your business can be difficult to determine. This is where you’ll want to work with a small business succession planner who can offer specific advice based on your circumstances.
Once you decide on a plan, it’s a good idea to also select a backup plan. This will save you time in the future if circumstances change.
Revisit Plan Regularly
By now you should have an idea of what your succession plan will look like, but as all business owners know: things change often. That’s why you need to revisit your plan on regular intervals to ensure it’s still the right path forward.
If you’re planning early, revisiting a succession plan every few years is sufficient. You’ll want to repeat the steps above. If you’re approaching succession, then revisit the plan at least every year.
Succession Planning Services with Greater Midwest Financial Group
With over 35 years of experience in helping small business owners succeed, we’ll make sure your finances are taken care of so you can focus on your business.
Use our small business strategies to:
- Help your small business grow in value while planning for the future
- Develop a real-world exit strategy that ensures your level of service carries on
- Evaluate the impact of business sales and liquidations on your situation
- Ensure continuation between partners (buy-sell planning) and family members (intra-family continuation strategies)
- Design benefit packages so your money is being spent on things that matter to your EES.
Greater Midwest Financial Group is a financial advisor firm serving St. Paul, Minneapolis and the wider Twin Cities area. We specialize in wealth management, retirement planning, asset management and other personal finance needs.
