Starting a business is hard, but passing it on to the next generation can be even harder. Succession planning is something that every business owner should be concerned with, but it is also something that tends to get put off until the last minute.
It is easy to see why business owners would be reluctant to talk about succession planning, much less develop a comprehensive plan for passing on the business, but that is no reason to put it off any longer. No matter how young and vibrant you are, you will eventually want to retire and enjoy the benefits of all your hard work. By the time that day comes, you should have a solid succession plan in place to reassure your clients, set the minds of your employees at ease and help your chosen successor take the reins with confidence.
As you develop your succession plan, you will want to be aware of some common roadblocks. These roadblocks have caused many previous succession plans to fail, but you do not have to fall victim to the same mistakes. Here are the top ten succession planning roadblocks - and how you can avoid them.
#1. Not Starting Early Enough
It is easy to put your succession plans on the back burner, especially if your own retirement seems far off. Even so, you never know when circumstances will force an earlier succession than you had planned.
The sooner you start your succession planning process, the sooner you will be done. Once the succession plan is in place, you will have one less thing to worry about, and you can get back to providing your clients with the best service and the independent investment advice they deserve.
#2. Failing To Seek Expert Guidance
You provide expert advice and guidance to your clients, helping to guide their investments and helping them build their own retirement portfolios. When it comes to succession planning, you need the same expertise and guidance.
Failing to seek out expert guidance for the succession planning and transition process is a big mistake, and one that many business owners unfortunately make. You are an expert in what you do, and succession planning specialists/tools bring the same level of expertise to the table.
#3. Over (or Under) Valuing Your Business
Getting the valuation right is an essential part of the succession planning process, but it is no easy task. You know how valuable your business is to you, but determining its fair market value is another thing entirely.
Once again, professional help and guidance can help ease the transition and make succession planning far easier. Getting help, from online platforms like Truelytics.com, will help you determine the true market value of the practice, so you can avoid the overvaluation, and the undervaluation, traps.
#4. Not Revisiting Your Succession Plan
As stated earlier, the sooner you begin your succession planning the sooner you can be done, but planning early is somewhat of a double-edged sword. If you take the advice of the experts and start your succession planning early, you will want to revisit that plan to make sure it is still adequate for your needs.
Things change, and the needs of your clients, the makeup of your management team and the desires of your chosen successor will likely evolve over time. Revisiting your succession plan on a regular basis will help you overcome this roadblock and keep your future, and that of your clients, on track.
#5. Not Putting it in Writing
Keeping your succession plan in your head is fine at first, but as your plan comes together it should be put in writing. Having a written succession plan is absolutely essential, and the sooner you get started the better.
The written succession plan should be as detailed as possible, laying out the name of your chosen successor, how client accounts will be handled, the makeup of the transition team and the nature of your ongoing support and consultation services.
The succession plan should also clearly lay out the value of the firm and establish a timeline for the takeover of the business. Passing on a successful practice to new owners is a daunting task, and your written plan should not leave anything to chance.
#6. Failing to Consult an Attorney
The complicated nature of a business succession makes consultation with an attorney an absolute necessity. Some business owners try to go it alone and take care of all the details, but they do so at their peril.
Hopefully you already have an established relationship with a good business attorney. If so, you can discuss your succession plan with your attorney and work out the details from there. If you are not currently working with a business attorney, now is the time to forge those relationships and start working on a formal succession plan for your practice.
#7. Ignoring the Tax Consequences
Nobody wants to think about taxes, but Uncle Sam will want his cut when the business changes hands. Too many business owners ignore the tax consequences of the transition until it is too late - and end up with a big tax bill for their trouble.
If you have done your homework and properly valued your business, that will make your tax planning a lot easier. Even so, there will be lots of big and little details to work out, and proper planning is the best way to minimize the tax bite.
#8. Assuming the Kids Will Take Over
If you have children, you may assume that they will take over the business when you are ready to retire. Depending on your circumstances, and theirs, that may or may not be the case.
Simply assuming that the kids will take over the practice is one of the most common, and most easily avoidable, succession planning mistakes. As your succession plan comes together, you should call a family meeting to discuss the process and assess your family members' level of interest in the business.
#9. Choosing the Wrong Successor
Choosing the wrong successor is another common but avoidable succession planning mistake. The selection of a successor is one of the most important decisions you will ever make, and you need to give it the care and consideration it deserves.
You should talk about your succession plans with your management team and develop a plan to move forward. As the owner of the business and the person who runs the practice, you have the clearest picture of your management team. You know which members of the staff will be best able to handle the day to day operations of the business and who shares your management style and vision of client service. Use this information to guide you to the right successor - the one who can make the business better than ever as you enjoy a well-earned retirement.
#10. Letting Fear Get in Your Way
It is easy to see succession planning as the end, but in fact it is only the beginning. Letting fear get in the way is one of the biggest roadblocks to effective succession planning, but you do not have to fall victim to that trepidation.
Instead of viewing succession planning as the end of an era, look at it as the start of the legacy building process. You have worked long and hard to provide your clients with quality consistent service, hired the best people and trained them well and created a practice of which you are justifiably proud. Now it is time to sit back, relax and enjoy the benefits of your hard work. Far from being fearful, you should look forward to the transition - and to the great things to come.
Succession planning can be a daunting task, and there will be many roadblocks on the way to the transition. Knowing where other business owners have failed will help you avoid those blunders and make the most of your own succession planning.
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