Be prepared

When meeting with small-business clients, some questions I often ask are: "When you retire, who will manage your assets so you can continue to live the lifestyle to which you have become accustomed? Will it be your children? Your key employees? Your job foreman?"

Most small-business owners do not realize if their succession planning has not been addressed, the people who will manage their companies not only will determine their incomes following retirement but also whether they will have businesses from which to retire.

For many business owners, the subject of a succession plan is not addressed until it is too late and the values of their businesses already have declined. When succession is not addressed earlier in the life cycle of a business, a business owner often is forced to retain an income from the business that amounts to a return on his lifelong investment. If subsequent management falters, the retiree will have lost income and a decreased asset value if the business is liquidated.

From the successor's standpoint, being forced to pay retirement income creates a problem by depriving the growing company of the lifeblood it needs to grow-cash. In most situations, this income could be used to expand the business, hire employees or purchase equipment. A business's failure becomes a possibility when these factors force the two generations to realize there is no plan to survive, let alone succeed. As a result, families often are torn apart.