Business Transition Planning is the process of preparing to hand over control of your business to others in a way that is the least disruptive to the business’ operations and value.
It is important to have a transition plan because less than one third of family businesses survive the transition into the second generation. Of those businesses only one third survive to the third generation. Furthermore, according to research done in 2012 by the Canadian Federation of Independent Business (CFIB), only 10 percent of business owners have a formal, written transition plan, 40 percent have an informal, unwritten plan while 50 percent do not have a transition plan at all.
To be successful, business transition planning should be started as early as possible. Some advisors say that you should plan for a transition starting the day you enter into the business. However, five years in advance is sufficient, but ten years in advance is even better when it comes to preparing a smooth transition.
Transition is not a single event, but rather a process in which leadership and, eventually, ownership is transferred to the successor. The plan involves several steps that require time, often years, for it to be effective which is why one must start planning well in advance. The process consists of the following steps:
- Setting Financial Goals
- Figuring out the Current Value of the Business
- Building Business Value
- Selling the Business
- Creating a Contingency Plan
- Dealing with Emotions that Often Accompany a Sale
- Finding/Preparing for Something to Do After the Transition
- Planning for Death
There are legal, tax, and financial considerations that come into play at different stages of the transition. These are the tools by which the business owner’s goals and objectives are obtained. In order to ensure the process occurs smoothly and that the pieces are in place for the transition, one should always consult a financial planner, accountant and/or lawyer. These professionals are an invaluable resource to ensure your business is transitioned to the people you want, in the right manner.
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