It's no secret that building a successful food or beverage business requires persistence, dedication and personal sacrifices. As a business owner, you will likely want to reap the benefits of your hard work by retiring at some point in the future. But how do you ensure that the business will thrive once you leave? And how do you maintain the legacy of your business and protect the future for both your family and employees?
A succession plan enables you to identify and develop top talent to assume senior positions, with a long term objective of eventually running your company. It's a tool to protect all your hard work and sacrifices, while maximizing your proceeds in the event of retirement, illness, disability or death. If you plan well, you'll rest easy at night knowing that the business will continue to thrive beyond your departure.
While most business leaders understand the importance of succession planning, they can fall victim to human nature and fail to devote the time and resources to make it happen, instead, giving priority to other, more seemingly urgent priorities. As a result, they place the business at risk by not having a strong team in place who can step in, when required, to assume corporate leadership. It is far better to make proactive decisions than to scramble last-minute for situations that should have been planned well in advance.
Part of the problem is that many owners feel overwhelmed with the sheer scope of the task, and uneasy with the idea of extracting themselves from a business they've worked so long and hard to build. At Fuller Landau, we share our vast experience to work closely with you and your family in developing a comprehensive and effective succession plan to help you transition out of the business, while maximizing your proceeds.
Below are five key considerations to take into account when embarking on this critical process:
1. Outline Your Objectives for Your Succession Plan
Do you want a complete exit from the business without any continuing day-to-day responsibilities? Or would you prefer to transition your involvement over a period of time? This decision will impact the timeframe for the plan and how you execute it.
2. Determine What Your Business is Worth
A Chartered Business Valuator (CBV) will help you determine the fair market value of your business and give you a benchmark of what your business is worth. They can also help you maximize the value of your business by increasing sales, reducing costs, and ensuring the balance sheet is optimized for the eventual sale.
3. Identify Likely Successors
Family members, employees, and external third parties are all possible successors of your business. Special attention should be given to situations where some, but not all, of your children are identified as the likely successors. There is an increased risk of failure for succession plans when injustices, whether actual or perceived, arise from the transition of a business to one child and not another. Carefully consider the emotional consequences of these decisions as they can affect how smoothly the transition occurs. In the event that you decide your business is better suited for a sale to a third party, create a list of possible purchasers who may wish to acquire your company. Be sure to include any competitors on this list who may be willing to pay a premium to acquire your company's assets and, in particular, your customers.
4. Understand the Legal and Tax Implications of Your Plan
It is important to seek the assistance of tax and legal professionals in order to ensure your tax bill is minimized on the disposition of a major asset, and that no unforeseen legal complications arise when you want to end your involvement with the business. This is a crucial part of the succession planning process. If you overlook this consideration, you may be leaving a lot on the table.
5. Do Not Delay
It is highly advisable to start planning early, as a thorough and effective business succession plan usually takes a few years to implement. In our experience, five years is good – ten is better.
The key objective in an effective succession plan is to ensure the smooth transition of your business. In order to maximize the value of your company, focus on how your departure will impact relationships with your family, your customers, suppliers and employees, and leave the valuation and tax planning issues that are integral to a succession plan to your trusted professional advisors
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.