Despite the fact that small business succession planning is often one of the last things many small business owners want to think about, it is still very important.

And yet, many small business owners never get around to creating a succession plan. During the early stages of starting a small business, it can be difficult to think about anything other than getting your wheels off the ground. Even as you get a few more years (or even decades) under your belt, the pace never seems to slow. So, it can be difficult to carve out a time to address what is imminent.

However, the best run businesses – whether they’re near Bartley Financial’s offices in Andover, MA and Bedford, NH or on the other side of the country – pursue forward-thinking strategies and initiatives, and succession planning ought not to be excluded. After all, a well-designed and executed succession plan is the best way to ensure your business lives on without your leadership, protect your legacy, and procure a comfortable retirement for you and your spouse, as well as a substantial inheritance for your children.

If you have never created a small business succession plan before, you might be unsure where to begin. Below, we will discuss some of the most important things to think about when planning for the future. By keeping these critical considerations in mind, you’ll be able to position both you and your small business for long-term success.

1. Start with the end in mind (most of us don’t do this!)

Small business succession planning should begin with identifying and articulating the core principles, values, and vision of your small business. The first question you should ask yourself is “Why did I create this business in the first place? What is our mission?”

If your mission is to simply make as much profit as possible, then your planning will revolve around profitability and asset value maximization. If you founded your business with a different long-term mission, such as creating a family business, serving a community, or fulfilling a broader social purpose, the variables affecting your planning will naturally be a bit different. Regardless, taking the time to clearly identify your mission, long-term vision, and operational needs will make the entire planning process more productive.

Of course, in addition to thinking about what’s best for your business, you’ll also need to consider what is objectively best for you. What do you want to get out of your business? Whether you are a founder or a contributor, you’ll want to make sure the decisions you’re making are beneficial for all parties involved—including you.

Begin by asking yourself, “What do I want my future role in this company to be?” Even if you hope for your succession to coincide with your retirement, you might still want to retain a contributing role in management or an ongoing stake in ownership.

Having a clear idea of how far you’ll step away from the business and over what time horizon will help you identify the best path forward.

2. Kiss a lot of frogs

It’s impossible to stress this enough: start small business succession planning early.

Regardless of whether you’re shopping for leaders or buyers, you’re going to need to kiss a lot of frogs to find your candidates. Give yourself plenty of time to shop around and find the best fit.

Attend local and national trade association meetings, events, and conferences to network with your colleagues. After all, your ideal leadership candidate might not be within your organization, and you never know when you might discover a potential buyer. Get to know the big players – national, regional, and local – that could be your future acquirer and could be your succession plan if you become disabled or prematurely die.

Protect the value of your most important asset – your business –  by cultivating those relationships early. You don’t want to find yourself short on options when the time, either planned or unplanned, comes to hand over the keys to your company because you procrastinated your homework.

3. Develop leadership candidates

A business is much more than what can be described on paper. The core of any business is the people involved and this will remain true whether you are working there or not. To help prepare your business for the future, you will need to actively think about which roles you will need to fill and who will fill them.

The “smoothest” successions will involve one person simply replacing another. However, especially when the person leaving the company is the founder, doing this is not always so easy.

You may need to have several people replace the founder or divide the founder’s work across multiple, already-existing roles. There are likely several people in your company who are already familiar with almost everything you do. Make an active effort to identify who these people are, inquire about their long-term goals, and try to determine if they’ll be a good fit.

Once you’ve identified candidates, make an effort to groom them for eventual leadership positions. Help them develop the skills and knowledge that they will need to succeed.

4. Establish Buy-Sell Agreements

For business partners, the top of your small business succession planning to-do list should include establishing a buy-sell agreement.

A buy-sell agreement is a legal document that outlines what will happen with a partner’s share of the business in the event they leave (whether retiring, changing careers, disability, dying, etc.). The purpose of this agreement is to tangibly chart a path forward, clarify rights and obligations, and clearly resolve any potential ownership disputes in advance.

It should include a valuation method to determine both the value of the departed partner’s shares and potentially of the company itself. It may also include stipulations about who can purchase a partner’s shares, which may help the remaining partners exercise control over who has an ownership stake in their company.

5. Form a plan B

Many business owners use the value of their business as their retirement nest egg. While the sale of a business can certainly give retirement savings a helpful boost, it’s unwise to rely entirely on a sale.

There is a lot of private equity money out there right now, which is sending valuations through the roof. So, the supply and demand curve is in your favor – there’s a lot of money chasing a few businesses.

However, this will probably not be the case in a decade after many of the baby boomers have sold their businesses. That supply and demand curve will flip. Then what will you do?

Plus, the future is downright unpredictable. Take the pandemic for example. Many businesses, once thriving, were forced to shut down. If your retirement finances are entirely dependent on your business and a period of struggle forces you to shutter your business, then how will you retire comfortably?

That’s why it’s wise to consistently contribute to retirement accounts – there are some great options available to small business owners. If you haven’t saved enough for retirement you will be pressured to continue to work at the hectic pace you have for decades in order to squirrel enough money away to retire.

Work smarter, not harder.

6. Work with a financial planner and a CPA

Not planning for succession or incorrectly executing a succession plan can have significant financial and legal consequences for small business owners, their businesses, and even their families.

Working with a fee-only financial planner and a CPA can help you protect yourself legally, pay all relevant taxes, and develop a comprehensive approach to managing your personal and business finances. The CPA or a financial planner that is also a CPA is a critical part of the team. Like many financial transactions, succession can trigger significant taxes. 

Succession Planning at Bartley Financial

These are just a few of the tools that can potentially be used during the succession planning process. If you are interested in learning more about how any of these tools can help you better prepare for the future, consider speaking with a financial planner.

Robert Bartley, the founder and owner of Bartley Financial, grew up working many hours at his family’s restaurant. He saved the money he earned and started to invest.

The more time Robert spent managing his investments, the more convinced he became that there had to be a better way to manage his personal and family business’ finances. The CPAs and data silos headed by separate financial, insurance, and law professionals allowed too many chances for gaps in strategy and missed opportunities.

Robert craved comprehensive personal and business financial planning services that promoted a coordinated effort among the many professionals it takes to run a smooth business. Being the roll up your sleeves, detailed person he is, Robert went to school and pursued the professional designations of CPA (Certified Public Accountant) and CFP® (Certified Financial Planner®).

Now, Robert uses his business experience and financial acumen to guide other business owners in Massachusetts, New Hampshire, and elsewhere toward their most successful futures. The Bartley Financial team coordinates your business and personal goals and, in the process, enhances your business’ attractiveness to employees when you need to hire and buyers when you want to sell.

If you’re looking for a fiduciary financial advisor who can guide you through the complicated process of small business succession planning, contact Bartley Financial today.