Blog

By Purple Fox Legal

June 15, 2022

The day-to-day demands of owning and operating a business can be overwhelming. For this reason, many small business owners overlook the value and benefit of planning for the future. Do you have plans for the day you’ll exit your business? Do you know how you’ll help your business survive beyond your retirement? 

In this article, small business succession planning is explored. We’ll start by outlining the advantages of taking this planning seriously. Then, we’re sharing some real-life tips to help you get started with your succession planning today. 

The Importance of Creating a Succession Plan for Your Business

Though it may feel like planning for something far off into the future, proper succession planning can begin benefiting your business from day one. That’s because it puts a defined plan in place that can be followed, even after you step down. It creates a road map for your business and helps maintain alignment and trust. Believe it or not, the creation of a succession plan will grant you more time to focus on the daily operations of your organization. And, it will also help you establish more attainable goals as you go. 

Succession Planning and Transferring Ownership of Your Small Business

There are so many different ways to transfer a small business, and it’s important to pick the one that works best for you. Have you considered who you’d transfer the company to when your time to retire comes? The most common transfer options include: 

• Selling it to a Co-Owner
• Passing the Business to an Heir
• Selling it to a Designated Employee
• Selling it to Someone Outside Your Company
• Selling Ownership Interests Back to the Company (Note: This is only an option for businesses with multiple owners)

When to Create a Business Succession Plan

Business succession planning is a process that should be done much sooner, than later. It is an in-depth process and requires lots of consideration and legal planning. Most professionals agree that small business succession planning should be a priority once your business begins really taking off. You never know when you could be forced into early retirement, and the last thing you want is for your business to flounder. 

Research shows that proper succession planning can take up to 36 months to really solidify. So, the earlier you start preparing, the better. 

Tips for Planning Your Small Business Succession

As we mentioned above, succession planning is a lengthy process. It deserves lots of attention and should never be rushed. Even if you’re a person who never plans to retire, a succession plan can be beneficial for helping your business through unforeseen challenges, like if you were to get sick or injured. 

These are the most important tips for small business succession planning: 

• Start Planning Today

If you want to be able to perfect and solidify your succession plan, it’s important to begin the process as early as possible. You don’t want the process to feel rushed. 

• Communicate

Don’t just start planning your business succession in the dark. This is how rumors and misconceptions can start brewing. Instead, keep your employees in the loop, and even ask for their help in the process.

• Pinpoint Potential Successors

A successor might not be totally obvious to you yet, and that’s okay! Don’t be afraid to look at all your employees as potential candidates or to look outside of your organization for someone better. Once you begin thinking about candidates, your desire for the right fit will become more obvious. 

• Seek Legal Assistance

Business succession planning is definitely an intensive experience. It demands a lot of thought and consideration and is probably one of the most important decisions you make. Don’t be afraid to seek legal help through the process.