You’ve spent your whole life working hard and building a business you’re proud of. You may want to have a robust retirement strategy that helps you enjoy the fruits of your labor when you’re ready to call it a career—and your business may be one of your most valuable assets.
By taking a proactive approach to succession planning, you’re more likely to get the best of both worlds—taking steps so that your business remains in good standing once you step away while enjoying the comfortable retirement lifestyle you’ve worked tirelessly to achieve.
What Are the Risks of Not Having a Succession Plan in Place?
If you haven’t put together a succession plan yet, you can take comfort in the fact that you’re not alone. Believe it or not, 60 percent of small businesses don’t have a succession plan either.
So what happens when you don’t have a plan? After years of doing things the right way and building a strong business, your company might end up losing value after you’re gone—making it harder to sell. In a worst-case scenario, you might even be forced to stick around longer than you expected just to keep things humming along.
And who knows? There’s always a chance that you do leave, and your business collapses because you don’t have the right person on hand to replace you. Without a plan in place, you can also cause chaos internally as folks start fighting for control. In such a scenario, things could get ugly—and quickly.
No one wants that. Instead, putting together a solid business succession plan prior to leaving can provide a pathway for your business to succeed, and for you to retire.
Benefits of Having a Business Succession Plan
Having a succession plan—and, more generally, creating a retirement strategy—is a major opportunity that most small-business owners are missing out on.
With a solid succession plan in place, you get the peace of mind that comes with knowing that you have been proactive about your company . What’s more, succession planning can also bring more stability to your business well ahead of your intended departure, because you’re developing an operational plan by spelling out what’s to come next.
Succession plans may also encourage your top performers to work hard, stay engaged, and continue their career development. If you’ve earmarked a mid-level manager for an executive position down the road, for example, that person may work hard and make better decisions for your company because they’ll have more skin in the game than a simple paycheck.
Succession Planning Best Practices for Small Businesses
Now, you might be wondering how, specifically, you can put together such a plan.
Here are eight best practices you might want to refer to as you begin developing a succession plan for your business.
1. Understand your individual goals
You need to understand your own goals before you can put together a plan that works for your business. When do you want to retire? How much money do you need? What role does your business play in this? Do you need to sell it? These are some of the questions you’ll need to answer.
2. Center your approach
Best practices say a centered approach can help set the foundation for a successful foundation. This means creating clear, definable objectives and values for the people in the business.
A recent study from Deloitte elaborates on this point:
Succession planning is most effective when it takes a “centered” approach that focuses on people first while maintaining objectivity and procedural discipline. By approaching succession planning in this way, an organization can likely make it not only an effective part of its growth strategy, but also a signature feature of its corporate culture.
3. Consider several options
A succession plan needs to account for several different options. In an ideal world, you’ll retire when you want to. But you should also think about what happens in the event that you die unexpectedly or are incapacitated in an accident.
4. Identify and vet candidates
Of course, you’ll need to do your due diligence to identify and vet candidates who might end up wearing your shoes one day, based on the objectives your company needs for success.
5. Train successors
Once you’ve named successors, you’ll need to train them. You might want to consult a legal professional and ask them to sign nondisclosure agreements and noncompetes, too. Once you’ve named them successors, it might be time to give them raises as well.
6. Document your processes
You know your business inside and out. But does anyone else? Document your business processes so that people know what’s expected of them when you’re no longer there to answer their questions.
7. Continue revisiting the plan over time
A plan is never set in stone. From time to time, revisit your plan to see whether anything needs to be updated. For example, you might create a plan when your child is 10 years old. How does such a plan change when they turn 30?
8. Get your financial house in order
You don’t want your successor to inherit chaos. As you inch closer to retirement, manage your debt, minimize your taxes, and optimize your finances to increase the chances that your successor lands on both feet.
Need Some Help with Retirement Planning?
One of the biggest reasons the bulk of small businesses don’t have a succession plan is because of how complicated the process is. At this point, you might not even be sure where to begin.
The good news is that you don’t have to do it on your own. By partnering with a trusted advisor, you gain access to a professional who may have helped small-business owners like you develop retirement plans that work for their unique circumstances and include succession plans they are comfortable with.
If you’ve got questions about retirement or succession planning, we’ve got answers. Contact an advisor today to learn how an EP Wealth Advisor may help you meet your long-term business and financial goals.
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