I’M NEVER GOING TO DIE AND OTHER BAD SUCCESSION PLANNING IDEAS: PART 1 OF A SUCCESSION PLANNING SERIES
What is your plan for retirement? If you are like the majority of the other 30 million small business owners in the U.S., your business is the majority of your retirement plan. Whether your plan is to sell the business to a third party or transition ownership to your employees, odds are the majority of the funds you and your family are counting on when you retire are tied up in your business.
Here’s the problem: most small business owners start thinking about succession planning in their 60s, when they are facing retirement. Not only is this too late, but the vast majority of owners fail to consider what will happen if they die or a disability stops them from being able to run their business before retirement. Selling your business in a fire sale is not the best way to ensure financial security for your family.
Succession planning is not only for those over the age of 60. In fact, odds are waiting until you are ready to retire is too late for many options. A recent study by CNBC and the Financial Planning Association found that that the only thing harder for small-business owners than emotionally letting go is actually finding a buyer. Only 28 percent of the business owners surveyed were successful in selling their business. According to CNBC, 10 million small-business owners plan to sell or close their businesses over the next 10 years as a means to fund retirement. There won’t be enough buyers to go around.
Let’s look at this from another prospective: compare transitioning your business to negotiating a lease. Let’s say your business has out grown its current space and you are looking to relocate. If you start looking for new space well ahead of your current lease’s expiration date, you are in the driver’s seat. Landlords will be throwing concessions at you (reduced rent, rent abatement, build-out costs, etc.) because they know they have competition and they want to lock you into their space. But what if you had waited until a few months before you have to vacate your current space? Now you’ve lost your leverage. There are only a handful of spaces that can accommodate you on short notice and those landlords know they have you over a barrel. They won’t be making any concession for you – they’ve got you right where they want you.
The same is true for succession planning. Try selling your business when you are facing retirement – the buyer knows you need out, and they will use that against you. The same is true even if you are planning to transfer the business to your current employees. You may have waited too long and that key employee you were counting on gave up and left for another company. Or you could be stuck in the same negotiating position – your key employees know you want out and will use that to leverage a better deal for themselves.
Succession planning is for all ages, business shapes and sizes. Planning ahead is the best way to ensure financial security for not only you and your family, but your employees who would be out of a job themselves if you were suddenly not there to run the business.
Over the next few months we will be presenting articles about various aspects of succession planning, all aimed at giving you suggestions and ideas to consider. Keep an eye on our blog (http://www.wpdlegal.com/blog/business) and our upcoming business e-newsletters. Every succession plan will be different, and should be designed around your needs and the needs of your company. The best plans should be able to flex and change along with your company’s needs. But now is the time to start considering and evaluating your options.
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Should you have any questions about succession planning or any other law that may affect your business, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
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