You’ve worked for years building your business, hiring employees, maintaining relationships with customers and running the company. But now you’re considering stepping away from the business and selling. When transitioning your business to new owners and preparing for your departure, there are certain steps to take and questions to ask.
We help business owners not only with their financials but also help transition the business to new owners. If you’re a business owner ready to start enjoying your retirement, a succession plan is essential for transitioning in new owners and keeping the business afloat. Tim Piehl, owner of Zephyrus Financial Services, has also been through the process himself when he purchases the business from his father. He’s learned if you don’t have a plan for the end, there is no value in the business. We are also fiduciaries, meaning we are obligated to put your best interests first.
The questions below should be considered by any business owner before retiring.
What is a succession plan?
Every business owner needs to have an exit strategy. Even owners of smaller businesses should put a plan in place. Don’t assume there will be a lack of interested buyers. You must be prepared to sell your business! Succession plans are different for every company, but essentially it outlines what will happen to your company once you sell it. A succession plan can offer support for your employees, increase the business’ value and smooth the transition from your ownership to someone else with step-by-step instructions. The goal is a plan that benefits the departing owner, the business, employees and the successor.
How can a succession plan help you?
A succession plan can help your company seem desirable for potential owners who are looking to buy. The plan will lay out the company’s mission, values, goals and long-term plans so buyers can determine if the business’s goals align with their own.
What does a succession plan include?
No two succession plans are the same, but the plan should include a succession timeline, potential successors, collection of documents, procedures, employee handbooks and training documentation. It will also state the business’s value and how your succession will be funded.
Here are some of the questions a new buyer will likely ask:
When will you sell your business? The value of your business and the number of potential buyers can help determine when you sell your business. Other factors include peak season for your industry, consumer demand, competitor expansion and the health of both the local and national economy. What’s important is to prepare for the sale as early as possible. Early preparation can help ease the transition for the buyer and keep the business running smoothly.
How will a sale affect your partners? The sale of a business brings a host of legal implications when there are multiple partners. Co-owners should negotiate the terms of a sale or buyout together. Additionally, receiving a business valuation of the company will help all partners understand their financial position in the company.
How long will you stay on after you sell your business? Some owners will stay on in a training or consulting role. The transition period could be a few weeks to a year, depending on your exit goals. If you aren’t ready to fully step away but want to sell, you can negotiate with the new owners to stay on until you’re ready to retire.
Are you willing to sell the business to someone outside the company? The answer to this question is important when considering the legacy of your business. You will want to find a buyer who aligns with your company goals and vision.
How much profit will you receive? A business appraiser will be able to get you a detailed valuation of your business to help prevent you from underselling. A fair price for your business can help increase your retirement savings.
What are the tax implications of the sale? Sellers should look at the tax implications of the deal. One option is to structure the sale to have more of the proceeds taxed as long-term capital gains. Work with a professional to look at hypothetical calculations of different scenarios to see how the results can vary.
Will the structure of the business change with the transition? The new owners will be able to use the transition plan to ramp up more quickly and further cement the success of the business.
Whether you’re thinking about selling your business this year or several years from now, a succession plan is a way to help you strategize for the future and solidify long-term business changes. When you’re ready to start thinking about optimizing your company’s value and leave your leadership position, contact our office, and we can discuss and build your strategy together.