Video – Family Business Succession Planning Tips for small business owners
These tips for your family business succession plan are essential for any startup, struggling, surviving, or thriving small business or sole proprietorship. And as a free bonus, get my 20-point LIFT Confidence Assessment here.
If you want more small business tips for your business whether it’s a limited liability company, corporation, or sole proprietorship, subscribe to this channel.
Family Business Lawyer Greg Gordillo has represented small business owners, entrepreneurs, and sole proprietors for more than 25 years. He provides here his insight into one of the most common mistakes business owners make: failing to have a business succession plan. This most often becomes apparent when clients complete Greg’s 20-point LIFT Confidence Assessment.
The LIFT Confidence Assessment is a look at your legal, insurance, financial, and tax systems that are critical for having a solid foundation on which to build any business. In this video, we focus on a part of the legal system and every business owner’s estate planning that should be in place: your business succession plan or exit strategy.
Smart Succession Planning
According to a 2019 survey by PwC, 80% of all small business owners, entrepreneurs and sole proprietors do not have in place a robust, documented succession plan for their family business.
Here is a link to the report: https://pwc.to/3d4kDVn
And yet, smart succession planning is essential to sustaining a small business or sole proprietorship and keeping it flourishing.
When considering a business exit, there is a lot to take into account — not just when it comes to your money, but when it comes to your personal legacy as well. Creating an intentional business exit plan and making it part of your estate plan will help you achieve the best possible outcome for yourself and your family’s finances, your reputation as a businessperson, and the business itself. Having a plan in place, even if you aren’t planning to exit anytime soon, can also help keep the business stable in case of your sudden death or disability.
For many small business owners, entrepreneurs and sole proprietors, the first exit strategy is to sell to the business to Partners, Employees or Family Members. Putting in place the succession plan now will make that much easier to do later. Some of the ways to do it are:
- A buy-sell agreement for immediate full payment
- An installment sale over time
- An ESOP Plan
Regardless of who eventually is going acquire your business – or even if you plan to eventually just sell off its assets – the business will be more valuable then if you set your business up now to be acquired later.
To get the best return on the sale of your business, you will need to make it as attractive as possible to an outside company or individual who you think would be interested in buying it. This option may require a lot of work on your part, or else you may end up having to sell far below market value in order to make a quick exit.
You will need to
- Conduct market research,
- Tighten your operations, and
- Be able to prove your business’s profitability to any prospective buyer.
To implement any of these plans, and to plan for an exit that maximizes your gains and preserves your legacy, you will want to take the following steps:
Evaluate Your Business Systems:
Whether you choose to sell to an outsider or be bought out from within the company, you will want to have your business systems evaluated from the perspective of “saleability” so you can identify what needs to be shored up for the business to be able to continue beyond you.
Amend Partnership Agreements If Necessary:
If you have partners, hopefully, you discussed exit to begin with, and have plans in place for how to exit, transfer your interests, and split up profits and losses. If not, it’s time to get those agreements updated and documented now. Call us immediately, if it’s time to relook at your partnership agreements.
Write Up Provisions for Family Succession:
If a family member will be taking over your business, be very clear about what that entails. Who will inherit ownership of the business? Who will inherit the actual duties of running the business? If there are multiple family members, such as siblings, who all may have an interest in the company, but who may not all be treated equally, begin to address those issues now. We can help with that.
While you are thinking about your exit strategy, you should also be prepared to get a business valuation: Before you consider exit, look at the different valuation methods, and decide which one applies to your business. We can help you with this process.