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Planning to Transfer Your Business Internally? Here’s What You Need to Know

Business owners put off internal transition planning for many reasons, as we talked about in Top 3 Reasons Why Business Owners Don't Do Transition Planning. As a business owner, you've spent much of your life building a successful business, and it's probably difficult to think about passing it on to someone else. And oftentimes, owners become overwhelmed just thinking about it. However, the reality is, you will leave your business one day, whether it’s voluntarily or not. You may leave due to retirement, disability, or even business failure. Unfortunately, many business owners believe they can worry about a business transition plan at another time only to find out the hard way that later is too late.

Having an effective business transition plan in place well in advance can help give you some control over the future of your business and ensure that the transition is one that’s beneficial to you, your family, and the business. It can help you:

  • Transition on your own terms and in your timeframe
  • Maximize the after-tax value of your business
  • Ensure continuity in case of an unexpected event
  • Help ensure financial security for you and your family

If you’ve started thinking about planning an exit strategy for your business transition, here are some of the key questions that you’ll need to start asking:

  • How much longer do you want to own or work in the business before retiring, selling, or transferring ownership?
  • How much money will you need from your transition?
  • To whom do you want to transfer your business? What are your options?
    – children / family
    – management team
    – all employees via an Employee Stock Ownership Plan

The answers to these questions will provide the foundation for structuring your business transition plan, which is only the beginning. This transition can be a complex. Working with advisors who specialize in business transition planning can be extremely helpful to guide you this process. And, make sure that you give yourself adequate time. Generally, we recommend 3 to 5 years in advance of a planned exit.

Owners who develop a business ownership transition plan will have a far better outcome than those who don’t. To understand why you need ample time for developing and executing a business transition plan, see How Long Will It Take to Transition Your Business to Others? And, as always, if you have any questions about starting your business transition planning, please feel free to contact us.

 
Photo Credit to DGH;Flickr