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Fumbling the football once is a faux pas, but not usually one that's fatal to a career. Unless, that is, the football you fumble is your business when you try to hand it off to new owners. There are no second chances in succession planning, experts says, and you need to nail it the first time if you want your business to live on.
American small business owners are not prepared to face the inevitable. Fewer than 30 percent of family-owned businesses make it to the second generation, about 15 percent to the third generation and only 3 percent to the fourth and beyond, according to a study conducted by The Family Firm Institute.
Although companies should consider planning for succession five to 10 years before a transition is expected to take place, many small-business owners find themselves heavily focused on day-to-day business operations, especially in economically challenging times, and do not invest the time necessary to develop a comprehensive succession strategy.
"It's never too early to begin succession planning, particularly when you consider that fewer than half of those expecting to retire in five years, and one-third of those expecting to retire in the next 10 years, have actually named a successor," said Kara Kaiser, regional president at M&I, a part of BMO Financial Group. "In order for business owners to ensure their business continues to thrive, succession planning should be a priority that mitigates risks associated with economic uncertainty or a sudden shift in management."
Kaiser offers small-business owners the following advice to get them started down the path of succession planning success:
Start early – Succession planning must begin at least 10 years in advance in order to realize the full potential value of the business and ensure a smooth transition to new ownership.
Consider all your options – Whether a small-business owner chooses to sell, transition to a family member or business partner or dissolve the business, there are many complex issues that need to be evaluated before a decision is made.
Speak with a financial adviser – Each business is unique; a succession plan should reflect this and be tailored to the particular aspects of a business. A financial adviser can help small-business owners develop tailored solutions and the ideal succession strategy to meet their business needs.
Reach BusinessNewsDaily senior writer Ned Smith at firstname.lastname@example.org. Follow him on Twitter @nedbsmith.