Most business owners have the goal that they’ll sell their business one day to a third party for its full value to fund their retirement, but the reality is that very few businesses that go to market actually sell. According to BizBuySell’s recent national report, only one in every five businesses listed for sale actually sold in 2016. While this may sound rather dismal, there are other options for owners. In fact, approximately two-thirds of the business owners we work with choose to transition their businesses internally.
There are myriad benefits to transitioning your business to someone internally, such as family members, key managers, or employees. However, it’s still a complex process that needs to be planned carefully in order to achieve success. While, as with any business transition, there are transactional and legal decisions that will need to be made, some of the largest challenges include deciding who will be the best candidate(s) to run the business and outlining a plan to ensure their success.
The Benefits of Selling to an Internal Buyer
Selling internally can offer a distinct advantage over selling externally: You already have an identified buyer with a working knowledge of the business and an interest in acquiring it. And since an internal buyer has probably been involved with the business for a substantial period of time, he or she is a part of the business and has helped shape the culture and position within the community. This can provide for a smoother transition and less business disruption. In an internal sale, the owner also has the flexibility to remain as involved as long as he or she desires. It can provide time for the new owner to adjust to a new role and receive needed mentoring and support from the former owner.
Why You Need a Succession Plan
According to a recent report from Project Equity, more than 85% of business owners do not have a succession plan that outlines who will take over the business if and when they no longer can run it. This means that if something happens to the owner, the company and all of its employees may be at risk – it could even force the company to shut down.
Keys to Success
Succession planning is not simply making the decision about who will own the business if the owner passes away. A legal change of ownership merely records the transfer on paper. It doesn’t address the other (and arguably more) important details about the person who will be taking over your business:
- Can they effectively run the company?
- Do they have the capability, the desire, the training, the leadership, or any of the other tools, characteristics, and attributes necessary to carry out and carry on the leader’s role?
True business succession requires careful thought, planning, time, communication, training, mentoring, and most of all, the selection of the correct successor. Over the next couple of weeks, we’ll be discussing the most important elements of succession planning.