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. We get so concerned with what’s happening tomorrow and next week, that we 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 day of your business will eventually come. Hopefully, it will be on your own terms, but in too many cases, businesses are lost due to untimely injury, death or even an insurance claim that you simply weren’t covered for. If something happens to you, your family may have to deal with closing down your company. They may be forced to pay off debts, deal with real estate, inventory and other issues. Someone else may have to run your business. It could also 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.
Set a price.
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 could bring you $675,000. $200,000 would bring $900,000. So, if you are planning to retire, a little planning now can make a BIG difference in your lifestyle later.
That’s way too much money to leave on the table by just 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 keep you focused on your long term objectives. You’ll also be better prepared if someone suddenly knocks on your door with an unexpected offer to buy. After all, it’s 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 this: “Many business owners dismiss the idea of a good plan in the case of their demise because “they won’t be here”. Without a plan, you’re exposing those left behind, your family, employees and their families, investors, 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”.
Have prepared leadership to take over if it becomes necessary. If you get sick, you’ll need someone who’s prepared to lead your employees. Someone with the same culture and the same long-term goals and objectives. This can also allow you to take those well-deserved but never taken vacations you’ve dreamed about. Investing in personnel development for your staff 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. We’re committed to helping others be well prepared for the inevitable.