Do you want your business to end up in probate?
Succession planning isn’t something to do when you get old. It’s something that needs to be addressed at the beginning of your business, and for several reasons. Business owners today are so concerned with what’s happening tomorrow and next week, that they simply forget to consider the inevitable, the last day of business. Ever. The cold hard truth is that day is coming, and you should have a plan in place.
The last days of your business will eventually come. Hopefully, it will be on your own terms when you finally decide to retire, but in way too many cases, businesses are lost due to untimely death or incapacity, economic conditions or even from an insurance claim that owners simply aren’t covered for. If something happens to you, your family will have to deal with closing down your company, paying off debts, dealing with real estate, inventory and other assets, selling it outright, letting someone else run it or it could be forced into probate, all because you didn’t have a clearly defined, executable plan in place. The choice is really yours to make, if you choose to make it.
If you want to someday sell your business, the EBITA will be an extremely important element because you’re likely to be paid a multiplier based on that one measure. For instance, if you profit $100,000 per year, and your agreed upon multiplier is 4.5, then you’re looking at a selling price of $450,000. Earnings of $150,000 would bring you $675,000 and earnings of just $200,000 would bring $900,000. So, if you are planning to retire, a little planning can make a BIG difference in your lifestyle after the sale, and that’s WAY too much money to leave on the table by closing the business down or leaving it to a probate court because of poor planning. Setting a sales price goal for your company early on will help to keep you focused on long term objectives and to be better prepared if someone suddenly knocks on your door with an unexpected offer to buy. After all, it’s the fruits of your life’s work, shouldn’t it be worth something?
Without the proper insurance coverage, one single incident or injury could bring your business to a sudden stop in a single day. Done. Over. Luckily, with a little planning, this doesn’t have to be the case for anyone. John Ballinger, a nationally recognized Risk Management Advisor, and a founding partner at Part Time Business Partners, says “Many business owners dismiss the idea of a good plan in the case of their demise because “they won’t be here”. But without a plan, you’re exposing those left behind, your family, your employees and their families, your investors, your vendors and your customers to possible financial hardships and unnecessary stress. A probate situation will take about two years, costing your family 10s of thousands of dollars more than a succession plan would have cost to develop in the first place”.
Another important part of the puzzle is making sure you have prepared leadership in your company to take over if it becomes necessary. If you get sick, you’ll need someone who’s prepared to lead your employees with the same culture you developed and the same long-term goals and objectives. (Having leaders ready to step in will also allow you to take those well-deserved and often never taken vacations you’ve always dreamed about.) Investing in personnel development is a key part of succession planning and takes time to develop. Time you may not have if you wait until you need someone to take over.
At Part Time Business Partners, succession planning for our clients is one of our primary focuses and objectives. Having sold businesses, we’ve learned the “what we did right and what we’d do differently” lessons. We’ve also seen countless others lose their businesses to poor planning in a variety of circumstances, and we’re committed to helping others to be well prepared for the inevitable.