Over the past few weeks, we have discussed steps to follow when you develop a succession plan for your business. First, we made the decision to do a succession plan. We looked at the value of the business. We explored all of the options for transition. And we determined your personal and professional goals and those of your family and key personnel. Now it’s time to set a course of action.
Communication is a key element of a successful business transition. The sooner you determine your course of action and share it with your family and key personnel, the more quickly everyone can work together toward the goals.
Each person involved in the business must understand the chosen plan of action and clearly understand the one thing he or she must do, above all else, to make the plan successfully hit its targets. Each key member of the team must be committed to the plan’s success.
Business owners often have a succession plan that they thought out in their mind, but they fail to share it with family members or key personnel. They sometimes find out too late in the succession process that other members of the family don’t share their vision – a roadblock that which can stop or certainly slow down the transition process.
Timing of the transition is a second crucial part of a successful business transition. If you intend to sell your business, the best time to do it is when the economy is in an up cycle. But if you want to gift your stock in the business to others, make your gift when the business value is at its lowest.
Early planning and commitment to the succession plan will allow you to analyze key indicators such as economic conditions, interest rates, industry trends, buyer activity and your company’s performance and overall organization – and take the appropriate action at the most opportune time.
The merger and acquisition market is depressed in the current economy and activity has remained low for an extended period of time. If your transition plan involves selling your business, allow enough lead time to enhance your profitability and make the business more attractive to a buyer now. If you do, you’ll be prepared to sell when the tide rises on the next economic wave.
On the other hand, if you and your family know that you plan to gift stock in the business to the next generation, you can take advantage of the current down economy to gift more interest in the business to family members while values remain suppressed. Many business owners have taken this route in the fourth quarter of 2010. There has been a large spike in business valuations for gifting purposes.
If you haven’t developed your succession plan and shared it with your family and key team members, you won’t know when the timing will be right to execute it, and those around you won’t know what they are working toward. Don’t make the mistake countless others have made. Work with your accounting professional to develop your plan of action, and communicate your plan early and often with your family and key personnel in your business. Then, you’ll be prepared to take action when the time is right.