4 Key Mistakes to Avoid During Succession Planning
It’s never too early for a business owner to create a succession plan and, with the Coronavirus outbreak, planning is more important than ever!
Seventy-five years ago, a company is founded and grows beyond expectations. Twenty-five years later, second-generation family members begin to join the organization. They all have the expectation that their company will sustain for generations. But that’s not what happens. In another company, its owner suddenly passes away. It was always expected that the company would provide an income stream long into the future. Upon his death, the income stream is put into jeopardy as family members with no knowledge of the business have to step-in to run the business. In both instances, the companies inadvertently jeopardized their precious asset by not creating a viable plan to pass control of their business to others.
All business owners want their businesses to thrive and endure. However, many don’t ask critical questions, seek advice and prepare early on to ensure that these long-term goals, in fact, happen. Here are a few key reasons why:
1. They don’t know the questions to ask or where to get assistance.
Business owners are experts in their fields. They know their industry, their products and services and their customers. Since succession planning is not part of the day-to-day operations of a company, it makes sense that business owners may not know the scope of options available to them and the importance of planning for the future very early on in the process.
2. They assume their children will take over.
Many business owners hope that they will be able to pass their business to their children or other family members. However, this may not be the dream of the next generation and, even it is, the child/relative may not have the capabilities or be in the position to run the company.
3. They equate succession planning with retirement.
This may feel like an unpleasant thing to think about or may seem to be way too far down the road to worry about. However, planning for succession, when it does not involve a crisis requiring immediate action, makes for the soundest long-term plans. It can also serve to ease anxiety about retirement as it enables a business owner to plan for the future by being better able to understand financial prospects over the long-term.
4. They believe there’s no rush and that they have an abundance of time.
For, succession planning to be successful, company owners need to plan ahead so that the proper groundwork can be laid, which takes many years. This includes thinking about the end game – sale, merger, next-generation; communicating the plans to ensure key participants are on the same page; identifying future leadership; and working with advisors to understand the company’s value and best position the company for a future event. It is never too early to begin to create your succession plan. The smoother the transition plan, the greater the chance that the business will endure and continue having financial success into the future.
Whether the plan down the road is to pass the business on to a family member, merge with another company or sell it outright, seizing upon the best opportunities in the future arise from planning and positioning your business today.
Protegrity Advisors specializes in mergers, acquisitions and valuations of mid-sized businesses across Long Island, the New York metropolitan area and abroad.