Unprecedented catalyst for business growth

Succession planning is an important transition for anyone, but it presents unique challenges for business owners. After years of building and running a successful business, deciding when and how to retire can be daunting, especially for those who don’t have a clear plan for the future. Over a third of small business owners and entrepreneurs have no retirement savings, with 12% believing they will never retire, according to SCORE.

For business owners—those who built businesses rather than inherited them from their family—succession planning is not just about stepping away from the day-to-day operations of their business, but transitioning from a life defined by business success to a life that encompasses a broader spectrum of personal fulfillment and legacy building. It requires careful consideration of how to preserve business wealth and legacy while embracing new opportunities for personal growth and exploration. This change often involves deep emotional and financial planning, as the lines between personal identity and business achievement are intricately woven.

Planning Ahead

“Succession planning is more than a contingency plan; it’s a growth strategy,” says Bobby Mefford, CRPC, owner of Mefford Wealth Management. “Initiating this process well in advance of anticipated need, ideally 5-10 years in advance, allows business owners to carefully craft a roadmap that aligns with their personal retirement aspirations and business growth objectives.” It is important to integrate succession planning into the broader business strategy to create a clear vision for the company’s future.

Succession planning should include a thorough analysis of personal and business finances. “Working with a trusted financial advisor to create a diversified retirement portfolio that minimizes risk and maximizes returns is essential for small business owners. This portfolio should consider various sources of income, including savings, investments, Social Security and potentially the sale or ongoing business income,” adds Mefford.

Business Valuation

The report from SCORE found that 18% of entrepreneurs plan to retire using the funds they receive from the sale of their business. “However, there is a huge perception gap among business owners about what it really takes to have a successful payday at the end of their career,” says Dave Yeske, CFP. “Selling a small business is not easy; it’s very difficult to make money from a closely held business.” Especially when the founder is also heavily involved in the day-to-day operations of the company. Only about 20-30% of businesses that go public end up selling, according to research from the Exit Planning Institute.

Business valuation takes into account the business’s market position, competition and growth potential. A professional business valuation can provide a realistic picture of what the company is worth and help make informed decisions about its future, whether to sell it, pass it on to a family member or hire management to run it. .

Growth Driven Leadership Transition

For many business owners looking for growth, their company is more than just a source of income – it’s a legacy. Succession planning is necessary for entrepreneurs who do not want to sell their business. This can be a complex process that involves selecting the right successor, whether from within the family, the company or outside, and creating a transition plan that ensures continuity. And yet, only 34% of family-owned businesses have a clear succession plan, according to a study by PwC.

As with business valuation, succession planning should begin years before a business owner plans to retire. “Ideally, a small business owner should start succession planning at least three to five years before they want to sell their business,” says Lauren Altschuler, CEPA, CBI and M&A Advisor at Transitions in Business. Training and preparing the successor is a critical part of this process, as is establishing a clear legal and financial structure to support the transition. This may include drafting a buy-sell agreement, updating the legal structure of the business and planning for potential tax implications.

Lifestyle considerations

Succession planning is not only about finances, but also about anticipating the next chapter of life. “In addition to thinking about the financial and emotional aspects of leaving their business, business owners need to consider what they want their succession plan to look like. They may want to travel, pursue a hobby, volunteer or even start a new business venture,” says Mefford. Creating a long-term living plan can help set goals and budget for the non-financial aspects of retirement. This may involve moving, downsizing, or even retaining some role in the business, albeit in a less intensive capacity.

Growth planning for business owners is not just an ending, but a new beginning. By starting early, planning thoroughly, and staying adaptable, business owners can enter retirement with confidence, knowing they are prepared for this next chapter. The process involves a mix of financial, emotional and strategic planning.

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