Daniel M. Machnik is the owner of Willis & Machnik Financial Servicesan affiliate of Avantax Wealth Management.
When you’re building a small business, your time is precious. You’re focused on the right now—payroll, inventory, talent, operations, debt and profit. There’s often little time left to think about the long-term future of your business and who will run it when you’re gone. But your work deserves protection and a path to the future, and a succession plan is the first step to get there.
Why does it matter?
To me there are few things more tragic than a business owner with no succession plan. After you’ve poured yourself into building a dream, what happens to your hard work if you’re in an accident, suddenly become ill or simply want to retire? Without a succession plan, your life’s work can have a “permanently closed” sign on the door in the blink of an eye.
Make a plan now.
If you don’t have a succession plan in place, let today be the day. It’s never too early to start, but it can easily be too late. Here are a few succession planning strategies that your financial advisor can guide you through:
Pass your business on to an heir.
There’s something so gratifying about seeing a multigenerational business thrive. It’s the ultimate American dream to own a business and watch it grow with your children and grandchildren, securing your family’s future and contributing to a healthy community and economy. I have personal experience with this, not only through helping clients prepare their children to become bosses but also through my own firm, which was founded in 1987 by my mother, Pat. I joined in 2006 and later purchased the firm in 2018. This year, Pat is celebrating 40 years of working in the financial industry, feeling secure about the future because we planted the seed for our succession plan decades ago. We started thinking about the future of our business early and were fortunate to have a gradual transition of ownership with no disruptions in client care.
Sell your business to a co-owner.
If you have a partner, a great option is to sell your stake to the person who has worked just as hard as you to build it. I see this a lot with my clients, and if you don’t plan for this scenario, it can get messy fast. If a business has grown exponentially over the years and your initial investment doesn’t equal its current value, there can be disagreement over how much a buyout is worth. Your financial advisor alongside an attorney can help you understand your business’s value today so you can benefit from a fair deal. Again, an early plan is key. This is a solid way to both protect your business and protect the clients who rely on you. I brought in a partner at our firm not only to foster growth but also for the security of knowing I have top talent in place to care for my clients in my absence.
Sell to a key employee.
Every business owner knows your greatest asset is your employees. Without talented support, businesses fall apart. If you don’t have an heir who is interested or a partner, then who better to take over than a trusted employee who knows the inner workings of operations and culture? I’ll say it again—start planning early. Don’t wait until you’re 60 to think about passing the torch. If you identify an employee with the potential to lead, start building them up, training them and testing them so they’ll have the breadth of experience they need to manage.
Sell to an outside party.
If you can’t pass it down through family or employees, there is still a world of opportunity for a successful succession plan. I counsel clients on mergers and acquisitions all the time, and the best deals are the ones that give business owners peace of mind. There’s value in choosing a like-minded buyer who shares your business philosophy and ethical foundation. By transitioning your business to someone who will care for it as you do, you can be proud of what you’ve accomplished and know you are leaving it in good hands.
On the flip side of this, as we look to acquire firms and grow our business, we consistently choose to align with firms who care for their clients in the same way we do and share our tax-first approach to financial planning.
When one team member joined our firm in 2008, it was part of his succession plan to care for his book of clients. This year, we celebrate his retirement, and he knows his clients are secure, not upgrading or transitioning from the quality of service they used to, because of the long runway leading up to succession with a like-minded firm.
Secure the future.
These are just a few options to weigh when thinking about a succession plan, and a financial advisor can offer guidance on the best strategy that meets your specific needs. No matter which strategy you choose, the important thing is to start planning now. Early planning is the key to most aspects of financial security, but succession planning takes the cake for me. For business owners, it has to be a top priority. Better to put a plan in place and know that your business, clients and family will be taken care of, rather than worrying or being caught off guard in the event of an unexpected life change.
Make a call to a financial advisor and help secure the future of your business.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?