We recently wrote here about how to transfer small business ownership to your heirs. But what happens when there are no logical family members to take over your business when you retire?
You have options but as is the case in any other business planning, you need to start acting sooner rather than later. In many cases, small businesses simply fail if there is no plan in place when the owner is ready to step down. That doesn’t even consider what kind of plans may be in place if the owner dies or becomes incapacitated suddenly.
So the idea is to plan early, or before there is a crisis, and then be prepared to update that plan as conditions change.
The first step is obvious. Is there someone in your business who is the logical person to succeed you when you retire or become unable to continue to run the company? Take a hard look at your employees to determine if the person is there waiting to assume the leadership role. Ideally this should happen at least a decade before you plan to retire.
Next you need to develop a formal training program. If you don’t have a business plan, you probably need one before you can develop a training program. If you do have one but it has been sitting on a shelf too long, you may need to revise it.
Use the business plan to identify the most important aspects of your business. Your potential successor should become familiar with all of these critical functions. This person needs to learn over time all the details of your operation, not just the executive duties.
You need to set a timetable to determine how and when leadership of the company should change. Start to have your successor take control of various aspects of the business. Let them learn from mistakes and try not to contradict his or her decisions.
Then you need to start to plan your retirement, including when it will start. And this is a plan you should stick to. People often plan retirement but when it gets closer, they put it off.
Finally, when you retire, hand the company off to your successor.
All that sounds simple enough but there are implications along the way – many of them dealing with financial planning. It’s important to acquire the assistance of an attorney skilled in the practice areas of estate planning and business law. Those are both practice areas with which we have great familiarity and can help.