We have all probably known, or have at least heard of a business owner dying and having no succession plan in place. Oftentimes, even the business owner’s spouse knows very little about actually running the business. One of my staff members lost her job several years ago when her boss died and the business just closed. These things can affect much more than just your immediate family.
Typically, succession means that a family member or one or more high-performing employees will take the helm. Alternatively, you can bring in a 3rd party to groom to take over. Aside from that, you can just sell the business to a private equity (PE) or venture capital (VC) firm. Selling to corporate interests is much more common than most people realize. Many pharmacies and veterinary offices are now owned by national firms. You have all probably seen a VCA Veterinary clinic. They will start with a name change, then become more and more “corporaty” over time. The seller will generally phase out over 6 months to 5 years.
I am contacted 3-5 times per year by the national tax chains, wanting to meet about selling my business. I have no interest in that. I just turned 50, and have already begun working on a succession plan. It can often take several years to find the right person to replace you, and to fully fund the plan. You, as the business owner, need to be driving this process. I plan to stay in the business for many more years, but I want to be sure to protect the interests of my staff, clients, and especially my wife.
Small businesses make up 44% of our economic activity, and employ 46% of non-government employees. This number was 70% a few decades ago, and has continually dropped over time.
Succession plans normally include one or more of: cash, cash-value life insurance, term life insurance, non-equity partner, equity partner, buy-sell agreement, stock sale, in-kind transfer, or seller-financing. Every small business is unique. You just have to take the first step while the waters are calm. Think about leaving a business legacy, with a nice pension income to boot. Let me know if you have an interest in discussing this in further detail.
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