When assessing the future of their business, it’s never too early for an owner to start planning.
Business owners have several pathways available when contemplating a transition of their company: they can sell all or a portion of it to an outside party; offer ownership to a key member (or members) of management; or transfer it as a gift or sale to family members. Regardless of choice, during the planning stage it’s important to prioritize three key considerations: business, personal, and financial.
Based on our experience, business owners tend to prioritize one or two aspects and neglect the others. Unfortunately, it’s the personal aspect that’s often overlooked as many business owners haven’t yet decided what they want to do in the future. Since most owners typically spend about 50-60 hours a week managing or thinking about their business, it’s essential for them to determine how they can find fulfillment once they’re no longer involved by identifying other interests and discovering new ways to make a positive impact in their next phase of life.
Business owners need to pay attention to their financial or wealth management portfolios to determine the dollar amount they’ll require to maintain their current or desired lifestyle. Adequate knowledge and proper planning allow owners to avoid any unexpected surprises and set suitable goals to achieve their objectives.
An always important aspect of running a business is the ability to reduce risk. The five Ds that can significantly impact a business are death, disability, divorce, disagreement and distress.
It is important to take steps to mitigate these risks. For example, an owner can obtain key person life insurance to ensure appropriate coverage. It’s essential, for instance, to have updated buy/sell agreements in place that align with your desired business transition plan in the event of any of the five Ds.
Proper estate planning can also help address unforeseen events and ensure that your wishes are carried out in managing the business and other affairs. These are just a few examples, and it is recommended to tailor your risk management plan to your unique situation.
These are just a few considerations that should be addressed to evaluate and understand your options for transitioning your business, ensuring you have no regrets and maximizing the value of your business. We’ll discuss many other areas of focus in future articles, including wealth management and key steps you can take to maximize the value of your business.
Please contact your Schneider Downs advisor if you have any questions or would like to discuss further.
About Schneider Downs Exit and Succession Planning
Schneider Downs’ Exit and Succession Planning services are multi-disciplined, fully integrated and holistic exit planning and succession solutions that are customized and designed for business owners by business owners. Exit and succession planning is one of the most important strategies you will need to implement throughout the life of your business, and whether you are ready to start today or in 10 years, it’s never too early to begin the discussions. Schneider Downs is uniquely qualified to provide you with ideas, options and innovative solutions to meet whatever objectives you have in mind.
To learn more, visit our dedicated Exit and Succession Planning Services page.
