If you’ve spent years thinking about or building your business, it may be hard to imagine the company without you at the helm. At some point, however, you’ll step aside and someone else will take charge.
Whether you pass the business on to a family member, sell to an external buyer or choose another exit strategy, thoughtful planning is essential to making your transition successful, not only for you and your successor, but also for the long-term health of your company. Even if you’re nowhere near retirement age or have no plans to leave your post, the time to establish a transition plan is now.
Your transition strategy can:
1. Guide your business plan. The best time to create a transition plan is at the same time as your business plan. That’s because your ideas about succession can influence what your business is worth and whether certain transition options are even feasible.
If you want to exit via acquisition, for example, you might include a timeline for courting potential buyers. If you want to pass the company along to an internal candidate, on the other hand, you might include a strategy for choosing and training your successor.
2. Reduce the risk for investors. A clear transition plan makes your company’s direction plain to investors, potential buyers and other partners. It lets them know where you’re headed and what you’ll value in a next-generation leader, which fosters stability and confidence while minimizing conflict and perceived risk.
3. Inform your personal financial planning. Will your business still provide you with income after retirement? How much will you pay in taxes as you sell or pass on your business? What kind of insurance coverage will you need to protect yourself after the transition?
How and when you exit your business will impact many aspects of your personal finances, including retirement, taxes and insurance. Planning for your transition early ensures that you’ll have enough time to consider these issues and put your personal finances in order.
4. Prevent confusion and power struggles. Exiting a business can be emotional. Many owners struggle to let go of their leadership and move on. Others are pulled in different directions by competing successor candidates. Some are even forced to leave their businesses due to emergencies, like disability or death. Considering your transition strategy in advance can help you navigate potential challenges and avoid anxiety.
5. Grow with your business. Your transition plan is more of a transition process — one that should start five to seven years before an actual change in leadership, according to Nadler Advisory Services, a C-suite consulting firm.
Protect the time and energy you’ve spent building your business by creating a transition strategy that will help it succeed in the future.
Jeremy Miller is the vice president and business transition strategist for Wells Fargo’s Utah Regional Wealth Planning division.