It is not uncommon for owners to procrastinate about planning an eventual transition from their business. Maybe it just doesn’t seem to be a current pressing need, or it is something to be planned in the distant future.

Unless owners are considering an imminent transition within the ensuing twelve months, they may incorrectly assume there is little or no need for planning, and if they do recognize the need, they may incorrectly assume they have plenty of time to accomplish the necessary steps.

One of the most important things they must consider is that proper planning requires sufficient time to craft the desired outcome. Time is not something we can purchase or create more of. Having ample time is critical to successful transition planning.

Let’s examine why: 

  • Do they have a capable and willing successor or successors in place? Owners often assume they have identified this person or persons who will be succeeding them in their business but may have never had the necessary conversations or objectively assessed if anyone under consideration possesses the necessary skills to follow in their footsteps.

  • Do they know how much money they will need from their transition? We call this money the “wealth gap”—how much they currently have in liquid assets that can be used for retirement, compared to what asset base they need and how much of that asset pool must be filled by the business. If they do not have ample time to create sufficient business value or save more outside of the business, they may not be able to fill their wealth gap. This could dramatically alter their post-transition plans and lifestyle.

  • How dependent is the business on them? If the owner were unable to continue running the business due to illness or disability, what would happen to the business and the owner’s future income? Developing a capable management team and a business that can effectively operate without the owner takes time. A business dependent on the owner creates a situation where the business and, therefore, the owner have risk. The creation of written processes, procedures, and the effective delegation of duties and responsibilities to a capable team are crucial to business continuity. This is true, regardless of whether an owner desires an eventual internal or external transition. These key elements should be in place no matter when an owner is considering transitioning as they protect the owner’s income and likely his or her largest illiquid asset, the business.

In summary, above are important considerations all business owners need to be mindful of, and we encourage them to address these as part of an overall business transition plan. However, each requires ample time to adequately assess and accomplish. Therefore, there is no substitute for planning in advance. It is crucial in order to ensure the owner’s desired goals and objectives, both financial and non-financial, can be achieved.  



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