This is the first in a series of six videos on succession planning for the owners of a closely held business. This first video addresses personal issues for the business owner. In future segments, we will look at the business advisory team, documenting the business organization, timing of the business succession plan and, finally, financial matters.
If you are the owner of a closely held business, at some point you must begin to think of a succession plan. Your first step is to determine your personal goals. As the owner of a successful closely held business, a significant amount of your life has been devoted to developing and growing your business.
Much of your personal identity is tied up in the business. A succession plan will involve transferring the business to family members, co-owners, employees or outside parties unrelated to you, the business owner.
The common element in any business succession plan is that you, as the business owner, are no longer going to be intimately involved with the day to day operations of the business. This will be a dramatic, life changing event for you, the business owner.
The beginning point for a business succession plan is for you to consider your life style and goals separate from the business. What will you do during the 10 or more hours a day you formerly spent working in your business? What are other interests and activities you will pursue? Will you look at taking advantage of other business opportunities?
Will you change the region where you live to a more favorable climate, both for weather and income taxes? Where do other members of your family reside and do you want to be in the same area? Do you want to step back from work completely or do you want to continue to engage in some work activity with your former business, as an employee for another business, or engage in a new business venture?
Another factor to consider is how much of the benefits you enjoy flow through your business, such as vehicles, real estate, club memberships, travel, meals and entertainment. Many, if not all, of these benefits may change in character or disappear once you sell the business.
In addition, they may be paid for with after tax dollars rather than deducted as business expenses. Speaking of dollars, what amount of income is going to be sufficient to support the lifestyle you want to enjoy once you are no longer receiving income and other benefits from your business? What will your monthly and annual budget look like?
These are just some of the factors you need to consider as you begin to establish a succession plan for your business. Before you begin to look at the plan for the business, you need to look at what the plan is for you.