In 2016, the American Institute of CPAs (AICPA) published a survey conducted by the Private Companies Practice Section (PCPS) and Succession Institute LLC. In the report, the PCPS states that less than 10% of sole proprietors and only half of multi-owner firms have a business transition plan in place. Whether you feel ready or not a business transition plan can safeguard your business and give you the power to create a smooth path for your successors. The more thorough your plan, the better.
The vast majority of businesses in the United States are small businesses, and many of those are family-owned operations or partnerships. Unlike large corporations, small businesses without a proper business transition plan often fail when the owner or a senior-level partner retires, becomes incapacitated, or dies.
Here are six steps every business owner should consider when developing a business transition plan.
1. Don’t procrastinate. Plan ahead and give yourself the opportunity to create a logical plan for your business.
2. Treat your business succession plan as a valuable, strategic planning exercise for your company. Make sure to address important questions such as the company’s potential value and who would be best suited to run the business in the future.
3. Set realistic expectations and terms if you intend to merge your business with another business. There may be a considerable gap between what you expect to receive for your company compared to current market realities.
4. Leverage your staff effectively. Prepare your new leaders for specific competency training related to their new role and formal training in management and delegation. A well-trained and structured staff will enhance your company and should be able to maintain client relationships and service levels once you transition out of the business.
5. Review all partnership agreements if your company is a multi-owner firm. Set clear expectations for all partners involved to avoid any financial burden.
6. Shift client relationships to a new key contact as you near retirement. This is an important step in ensuring client retention for your business.
More than 80% of businesses expect to have business transition planning challenges within the next decade. There is no time like the present to begin having discussions about creating a business transition plan that works for you and your business.
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