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MNP careers are Different by Design. As an entrepreneurial firm, we truly believe there are no limits to where your career can go.
Imagine the initial investment into a business you started decades ago has since bloomed into a multi-million dollar enterprise. With retirement on the horizon, your child is planning to take over the company, keeping it within the family once you’re ready to step down. It’s up to you to decide when to hand over the reins and provide some guidance for where you’d like your company should go.
But what happens if you’re struck by illness or some other tragedy? Will your family members and faithful employees be protected? Not having a clear plan for the future or a strategy to protect your family and assets could sabotage your plans and potentially even your business.
Succession planning is a critical part of the future success of any business, but focusing on day-to-day operations can make it hard to sit down and engage in the planning process. While a proper strategy will increase the value of a business and reduce risk, more than 50% of owners admit they have no formal transition plan in place. However, just as the success of any business is a function of the quality and quantity of preparation and training that go into starting it, the same applies to succession. Successful transitions are the product of thoughtful preparation toward the fulfillment of your personal ambitions and financial goals.
Planning ahead is a critical step to ensuring your retirement turns out the way you imagined it. A short-term plan can span anywhere between 1 and 5 years and should account for achieving long-term goals like grooming a successor, identifying buyers to maximize value and planning for retirement. By building a comprehensive plan, you’ll avoid falling into reactionary traps and realize possibilities you may have otherwise missed if rushing through the succession process.
Although each succession plan is unique to its creator and business, the most effective plans have three common elements:
A comprehensive succession plan takes into account what you want your business to look like once you are gone, your future income needs, the level of involvement you’d like to maintain and the legacy you want to leave. It also addresses the needs and expectations of family, business partners and key employees.
You may have abstract goals and grand visions for the future of your company, but it’s important to consider how realistic they are. Exploring all of your options and defining and prioritizing your personal and business goals can help ensure you achieve them in the most effective and efficient ways possible.
Remember, a succession plan typically takes between 1 and 5 years to implement and requires the expertise of your entire advisory team to ensure every aspect of both your future and your business has been accounted for. Your succession plan and business strategy should work in tandem with one another.
However you decide to part with your business, some specific considerations need to be incorporated into your succession plan. If you’re transferring the business to a family member, your plan needs to establish how you will equalize your estate amongst your spouse and children who may not be involved with the business.
If you’re looking within your management pool to see if an opportunity exists for an internal buyout, your plan should cover ways to bring potential takeover candidates into the decision-making process so they have a more vested interest in the company’s long term success.
Finally, if you’re planning to walk away and cash in on your equity, engaging with a valuations specialist can help establish an objective value for your business and how to make it as attractive as possible to potential buyers.
For more information, contact Nathan Bratt, CPA, CA,TEP, Taxation Service Leader, at 514.906.4638 or [email protected]
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