According to the US Small Business Administration half of today’s small business owners are 50 or over. It’s likely this group will be looking to sell or transfer ownership of their company within the next five years.
However, the prospect of leaving your business in someone else’s hands can be extremely daunting and emotional. But so many business owners forget or put off succession planning. It’s important to have a formalized succession plan.
Even if you’re planning to hand over the reins to a family member, it’s still vital to make a succession plan. The smoothest successions are the result of open conversation and commitment to preparing the next generation for continued success within the family business.
It’s important to explore the interests of the family member(s) that will be taking over the business – and then teach the additional skills needed. Establish roles early on to avoid any conflict or miscommunication between you and employees. And last, but by no means least, avoid blame by being transparent with each other about your long-term intentions.
If the transfer of ownership within the family is not an option, there is no shame in selling to a third party.
But how do you go about financing the deal? Whether you sell to a family member, you’re working towards a management buyout, or you’re selling to an outsider you may choose to finance part of the deal or could end up with a lump sum of cash. Whatever you choose to do you need to get everything in order. At the very least gather three years of tax returns, earnings statement, balance sheets, and any projections you have for the future of the business. You’ll need a good bookkeeper and accountant to help you work through a series of questions that range from what’s your business worth to how will you protect yourself? There are tax implications when businesses change hands so consult your financial advisor too.
Whatever you choose to do and however the transfer of ownership unfolds remember to include your wants and needs as part of the deal.
At Warren-Boynton State Bank we like to work with entrepreneurs and business owners across central Illinois with branches in New Berlin, Springfield, Palmyra, and Modesto.