A Publication of WTVP

Start planning now for the transaction of a lifetime…

As a business owner, you’ve devoted your career to building your company. Now is the time to plan for what comes next: spending more time with your family and pursuing new challenges. But how do you prepare for a transition that is among the most complex events of your life?

Creating and growing a successful business is seldom just about money, nor is the decision to exit the business. The process is intense, the details are complex, and the decisions are often an unexpected combination of the personal and the financial.

You may be wondering, “When should I start developing my exit or succession strategy?” Arguably, the answer is always “now.” The earlier you begin preparing for your exit, the likelier it is that your plan will be a success. Even if you don’t plan to retire anytime soon, it’s a smart idea to carve some time out of your busy schedule to think about how you wish to transition to your business.

Consider these five reasons why you should start planning for the transaction of a lifetime now:

  1. There’s no time like the present. Regardless of how you intend to transition your business, it takes time to organize and implement a succession plan. If you plan to transfer your company to a family member or an employee, you will need time to train your successor. If you decide to sell, you will need time to find the right buyer.
  2. Your exit from the business will affect your retirement and tax planning. Can you afford to step away from the company, or will you need income from your business to support the retirement you envision? Your answers to these questions may affect how and when you transition your business. Business succession planning also has an impact on tax planning. A succession plan that makes effective use of federal gift and estate tax exclusions and exemptions can help minimize taxes and ensure that your family and key employees are well taken care of.
  3. The earlier you start, the more control you have. The longer you wait to organize a succession plan, the fewer options you will have on how to transition your business. Most business owners want to provide continued income for their families and maintain jobs for their employees. They may also hope to establish a personal legacy through continuation of their business or a contribution to a cause that is close to their heart. By planning ahead, you can retain more control over the outcome and help ensure that your business continues to operate according to your vision and values.
  4. Your succession plan can affect the value of your business. All too often, business owners put off succession planning until a medical condition or other life event forces the issue. If you were to become disabled, your disability could negatively impact the value of your business. In addition, trying to plan for succession during a time of crisis or stress could lead to emotional or reactive decision-making. Considering all possible scenarios in advance enables you to make rational decisions that help preserve the value of your business, even if you’re no longer at the helm.
  5. Planning ahead helps you prepare for the transition. Exiting your business isn’t easy, especially when you have dedicated so much to making it a success. As you think about giving up your role, you may find yourself struggling with the idea of giving up control. You may also feel at a loss as to how to redefine yourself outside the context of your business. A good succession plan helps you and your employees prepare for a time when you will no longer be in charge. 

Succession planning can be a complex and emotional undertaking, but its reward is watching your business continue to grow and succeed after you’ve passed the torch. As you work on your succession plan, be sure to seek the counsel of outside advisors, such as your accountant, attorney, financial advisor and/or insurance professional, so that you understand the tax, legal and financial implications of your plan. iBi

Cathy S. Butler, CFP, CRPC, is a vice president, financial advisor and portfolio management director at Morgan Stanley Wealth Management. She can be reached by email at [email protected] or by telephone at (309) 671-2873.