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.
Forming a plan
How can you avoid this situation? I suggest you create a written succession plan. The following list of business succession essentials highlights the most common areas of concern, as well as solutions to these concerns, so you can address them before it is too late.
Create a blueprint
You probably would walk away from a project if the plans were simply verbal and so vague that you could not safely complete the project in a profitable manner. Yet you may be asking your family, customers and employees to continue to invest their time and energy in your firm without a blueprint for the continuation of your business or the capital to allow the business to operate in a viable manner after your departure. By addressing these issues early on, you can create a written, enforceable agreement to ensure your company remains successful and profitable for generations to come.
Brian Heckert is president of PENFlex Services Inc., a business consulting firm with offices in Nashville, Ill., and Peoria, Ill.