Author: Dr. Cheryl Cottle, Ed.D
How important is having a succession plan for your business? Is this something you have thought about in the design of your business or you have thought about as your business grows?
Succession planning is a question that must be addressed sooner than later by small business owners. According to research there is benefit to having a succession plan, because as you get older you will think of retirement, and having an adequate income to support your life style after retirement is of prime concern as you prepare for the next stage of your life. Having an effective succession plan also puts you in control of your future and the future of your business. It removes you from being dependent upon your adult children and help to address some of their interest and concerns. It also helps to reduce possible conflict that can occur due to inter-generational value system. Therefore to maintain control and financial independence, after you are no longer able to manage your business, think about a plan that will enable a seamless transition from being a busy entrepreneur to a financially secure retiree.
There are three options for business succession including transferring the business to a family member. Research shows that more women entrepreneurs than men are including their daughters into their business, and are more likely to have them a part of their succession plan. In cases where the business owner may not have children, nieces and nephews are often considered as prime candidates to take over the business after retirement, and he or she is generally groomed and taught the inner workings of the company’s management and operations.
Another available option is selling to a partner or an employee, generally referred to as management buy-out. In this situation, the employees of the company may see it beneficial to them to continue the growth and development of the company. They have been a part of the business, some from the inceptions, and they are familiar and very knowledgeable about the company’s operations. They know the business and do have a vested interest in seeing it grow and prosper. In addition to the sentiment and financial benefits, they are also familiar with your already established customer-client base, suppliers, and potential clients and investors. In making the decision to sell to a partner or employees, you should consider whether the employee or employees have the vision and the management capability to assume an ownership role through the transition period and run the business profitably long-term?
Last but not least is the option to sell your business to an outside buyer. If this is the option that you choose to take, it is important to ask the question, should I sell the whole business or part of it? It just might be prudent to remain part ownership rather than giving up total control. You can look towards your customer-base, suppliers, a competitor, or people from the business community overall.
I recently met a business woman who has a business in partnership with her husband, for over forty years and today their three adult children also work in the business. There has been a succession plan whereby the children have been taught to appreciate the business early on in their development. Do you see your business as a legacy you will like your children to continue? Or do you see your business as a venture that you will like to grow in the distant future overall? I believe that these two questions as mature business owners, we should think about and address it early rather than later.
— take a proactive approach to succession planning.
Research also shows that some business owner prefers to sell their business because they do not have any children, family members or friends to leave it to. One woman pointed out that she plans to sell her business, as she plans to go on retirement, because she does not have any children to supersede her. Research further shows that more women are inclined to include their daughters into their business than men are willing to bring their son’s. Do you see your business as a venture that you will like your daughter (s) or children in general to continue? Many business owners see their business as a legacy that they will like their children to continue? Some also see their business as a venture that they will like to grow in the distant future. Recently I met a professional business woman who started a business over 30 years ago, had her business succeeded to her son. Today she has transitioned and is pursuing another venture that she has great passion for, writing.
Another woman business owner noted that, “this is an important matter to me.” “I am teaching both my children — my son, who is a single-parent father, and my daughter, who knows the value of being at home with her children, the "non-location specific" business that I enjoy. It is not only a wonderful way to their own financial well-being, but also their own personal growth — both in business skills and people skills. I wish I had had that advantage that they have when I first got into entrepreneurship. “I will never have to worry about my children or my three grand-daughters being homeless!” Another woman pointed out that it is a great question that allows her to think about the future of her business and her life.
Research further shows that more women are inclined to include their daughters into their business than men are willing to bring their son’s. Do you see your business as a venture that you will like your daughter (s) or children in general to continue? Many business owners see their business as a legacy that they will like their children to continue? Some also see their business as a venture that they will like to grow in the distant future. Recently I met a professional business woman who started a business over 30 years ago, had her business succeeded to her son. Today she has transitioned and is pursuing another venture that she has great passion for, writing.
What are your thoughts?
What are your thoughts on this question? It would be nice to hear your ideas, thoughts, and perspectives!