Forty percent of business owners have no retirement savings. Many business owners have neglected this critical component of financial preparedness in favor of reinvesting into their company and trust that their future income needs will be realized when they transition out of their business. However, too often these same owners – along with many others do not have a plan for the future operation of their business.
This lack of planning contributes significantly to the high failure rate associated with transitioning a business. It’s easy for business owners to focus on the day-to-day operations without acknowledging that the future is fast approaching. Many owners believe their successors will place a similar value on the company, but this isn’t always the case.
Fortunately, it is possible to develop a strategy that is designed with the company’s best interests in mind. Succession planning is a pursuit that every business owner should prioritize, recognizing the process takes time. Leadership and ownership transitions affects every person and aspect of the business – and if you think your employees aren’t concerned about the future of the business, you are wrong.
By avoiding the following five mistakes, business owners can help achieve all of their succession planning goals:
1. Being Secretive about the Process
There’s no need to keep succession planning a secret. Your management team needs to be an integral part of the process. Otherwise, they will worry about the business’ future. It may even cause them to leave. Always remember transparency builds trust.
2. Having Unrealistic Expectations
When undertaking this type of planning, you need to be radically objective about your business and the people in it. You must be able to see the strengths and weaknesses of the people on your team in order to position the company for future success. Above all, you need to understand your company’s value in order to determine what is a reasonable expectation for your interest in the company. Legacy Advisors Network can help you understand the value of your business—fast. This way, your plan will be dictated by the outcomes that are most likely to occur rather that what “might” happen.
3. Making it a Competition
For many business owners that decide to sell to someone within the company, succession planning can seem like a competition. While it is crucial to a successful transition process to identify potential candidates for ownership, this may incite a destructive environment amongst employees. Alignment between current and future generations of the company’s management is imperative. Make the process collaborative and honest, not competitive.
4. Fearing What’s to Come
Every business owner worries about transitioning his or her company. After all, you’ve spent years building your career and investing in the business. But a fear of what’s to come will only impact succession in a negative way, hindering planning efforts. By starting early and taking the time to develop goals for yourself and your company, you will give yourself the best opportunity to reach an outcome that is advantageous to everyone involved. Delaying the planning process only gives you a smaller margin of error to attain your ideal outcome.
5. Failing to Consider Tax Consequences
Since succession planning can be an emotional process and one that is often put off until the last possible moment, owners may completely disregard the nitty-gritty numbers of transitioning the business, like taxes. The structure of your transfer will dictate the tax consequences. If your successor is an insider (family member or group of key employees), you may have control over structuring a transfer that avoids the most detrimental tax consequences. As with the other items on this list, developing a plan that minimizes tax consequences while accomplishing your goals takes time.
Business owners who commit to a process of identifying their goals and devote sufficient time and resources to developing an actionable plan have the best chance of achieving success while avoiding these common mistakes.
The Legacy Advisors Network team is here and ready to help you achieve your succession planning goals. For a free demonstration of how we can help, please visit: