“While 54 percent of business owners plan to leave their business in the next 10 years, 72 percent [of those] have taken no exit planning action,” according to a recent study. For most business owners, their business is by far their largest asset, and not properly planning for its transfer can put them, and their employees and family members, at risk. Being prepared is the key to success. It starts with owner education, allowing enough time to plan, seeking the best advice, and creating a Business Ownership Transition Plan (BOTP). A BOTP is a comprehensive written document that outlines how and when the ownership of a business will be transferred to others, either internally or externally, in order to achieve the owner’s long-term financial and personal goals.
Here are some of the steps business owners need to take to get started.
Start well in advance. It takes a lot more time than you may think, especially if you have to groom your successor or increase the company’s value so you may net enough money from the transition to fund your lifestyle goals.
Do not overlook the importance of identifying personal goals and what the ideal transition would look like. Business owners typically sacrifice their own personal passions and interests in order to devote all their time, money, and mindshare to growing the business. Their identity often becomes one with the business. It takes time to figure out what you want to do when you don’t have to spend every waking hour at the business. Start this process by taking regular time away from the business as you inch closer toward the ownership transition.
This will allow you some emotional space to reconnect with the world outside, think about how you want to spend the rest of your life, and begin to understand the characteristics of an ideal transition plan.
Calculate how much money you will need from the transition. As we discuss in our book Cashing Out of Your Business, most owners are not saving much money outside of their businesses, which would diversify their holdings and reduce their financial risk. Taking stock of your assets and knowing the value of your business will allow you to understand just how dependent you are on your business. Analyzing your personal income needs will be critical to quantifying just how much money you will need to net from the transition.
Don’t forget about deal structure and taxes. The vast majority of owners know very little about taxes, and we can’t blame them. They depend on their CPA to have the knowledge and minimize their taxes every year. When it comes to selling your business, however, we recommend that you get at least two knowledgeable advisors to weigh in on the financial deal structure and taxes. There are several different options, and the tax ramifications can be dramatically different. Other considerations when you pick a structure include your desired timeframe, level of control, involvement, and liability during the transition. For example, some structures involve losing control on closing day while others allow you to maintain control until you collect your last dollar of the sale price.
Consider working with an objective advisor. There are a lot of moving parts to planning an ownership transition. An independent and objective advisor, who is trained in ownership transition planning, can guide you through the process and help you to understand all the decisions that will need to be made. Most owners will run only one business in their lifetime, and that business is their ticket to financial independence. They may only have one chance at getting this right. There is no downside to planning and a tremendous upside to being prepared.
The Holistic Approach: Business Ownership Transition Planning
The best way to maximize your business value, as well as increase the likelihood for a successful ownership transition, is to be prepared. When done correctly, business ownership transition planning aligns an owner’s goals and objectives with the best sale or transfer options available and provides a comprehensive roadmap to a successful outcome. This cannot be achieved by addressing revenues or profits alone, and it is not something achieved through luck or chance. It is achieved through careful planning and preparation well in advance.
As a business owner, you are unique; your situation, circumstances, challenges, goals, and objectives are all specific to you. That’s why when it’s time to transfer the ownership of your business to someone else, the transition planning process should take all of this into account.
[Article from http://www.businesstransitionacademy.com/strategic-business-planning-blog/how-to-plan-a-successful-business-ownership-transition]