According to Investopedia, Business Succession Planning is described in the following way:
A strategy for passing each key leadership role within a company to someone else in such a way that the company continues to operate after the incumbent leader is no longer in control. Business succession planning ensures that businesses continue to run smoothly after the business’s most important people move on to new opportunities, retire or pass away.
Succession plan entails evaluating each leader’s skills, identifying potential replacements both within and outside of the company, and in the case of internal replacements, training those employees so they’re prepared to take over.
So for a successful succession planning strategy, where do you start?
The best place to start in terms of wrapping your arms around family business succession planning is with the retiring owner’s financial security. What are your objectives? By establishing clear goals, an advisor will be able to quantify success.
What does this mean?
Start managing yourself in the same manner as you would your business. Personal financial statements are a great place to start. When running a business, you create balance sheets and an income statement, so you should do the same with your personal finances. You want to be able to enjoy your retirement without having to worry about where your money is coming from and how long it will last. Analyzing both your financial statement and income statement will give you peace of mind.
Cash flow analysis is also an important document to consider. By understanding what it is going to cost to maintain your lifestyle, you will be able to gauge how your success plan needs to be set. Looking at a financial need vs. financial want perspective will also help you be realistic about your financial position.
How do we get there?
For the most part, the majority of your net worth is probably coming from your business. Because of this, you need to determine what the business must provide for you to live the lifestyle you want during your retirement. A valuation of the business, coupled with your financial needs, will make it easier to determine how you transition your business. This will also help you set the terms of what needs to be provided and during the negotiation process.
Ultimately, you need to look at your own financial needs for retirement and then determine from there how the business will be able to satisfy them.
Let’s Talk Business Succession Planning!
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