Succession Planning is based on one simple premise: at some point in the future, every owner leaves their business, voluntarily or otherwise. At that time they will want to receive the maximum amount of money in order to accomplish personal, financial and estate planning objectives.
Few business owners give this much consideration while starting or running their business. However, at some point it will become important.
Sometimes the exit may be forced upon an owner due to the death of a partner or co-owner, divorce, realization that the competition is winning, pressure from family, or debilitating health. If the process of exiting a business and succession is not done with an organized plan, it will inevitably be done by crisis, perhaps with catastrophic results.
Formulating an exit plan will provide a clear understanding of the ownership transition goals and the various steps which will be required to achieve them. An owner/shareholder must begin to become clear about their attitudes to some very basic questions such as:
- How much longer do I intend to work?
- What are the chances of my surviving in good health to that date?
- What would happen to the business if I did not?
- What would the tax implications be and how much after-tax income will be needed when I leave the business?
Whatever exit route is taken, there is one very important item to remember: typically business owners achieve operational success based on learning, trial & error, making mistakes, and experience. With respect to the exit from their business, in the vast majority of cases, they only get one chance.