Wenatchee Office located at 238 Olds Station Road, Wenatchee. By appointment call 509-888-7252 or email jim.fletcher@wsbdc.org

Friday, February 1, 2013

Business Succession - Just Closing Is Not A Plan.


You have invested a lot into your business. You invested sweat, cash, worry, hard work, and more cash, what happens to your investment when you are ready to retire? A succession plan is a predetermined strategy specifying the best way to exit your business. Preserving your legacy and your retirement income may depend on identifying how ownership will be transferred. A succession plan should also identify what will happen to your business if you have an accident or serious illness. Will your business just close or is there someone who can operate the business until you return?

Plan Ahead

If you are approaching retirement start planning at least three years ahead. It takes time to select and train a successor. Of if you sell find a buyer who is capable of continuing operations and hence qualify for financing. Preparing key customers and suppliers to work with your successor will protect sales revenues and vendor terms. Address family issues and expectations to provide an orderly transition. Prepare for your retirement financial needs.

Identify A Successor

Is the business to be inherited, do they want the business, are the prepared to operate the business? If the strategy is to sell then line up a buyer who has the capacity to successfully operate your business and who can qualify for financing. Having a predetermined buyer can also enhance value by stabilizing the transition, preserving customer and vendor relations, and setting terms that protect your retirement income.

Deal with partnership contracts, review the exit clauses, take required actions, and initiate a valuation procedure. Resolve issues quickly and in advance to preserve business values.

In the event of an emergency identify a temporary manager who can keep operations on track. It is not always the best choice to expect a spouse or other family to step in and rung the business while also trying to deal with the stress of your emergency, their regular jobs and their own family. A considerable amount of business can be lost, net worth gone, debts increased as a result of poor management during an emergency.

Maximize Value

Unfortunately, financial statements are too often in poor shape resulting in the loss of value. Work with your accountant to get Profit and Loss Statements, Balance Sheets and Statements of Cash Flows ready for a potential buyer. Clean up bookkeeping errors and show profitability. Ideally at least three years of increasing sales, costs are controlled, fixed assets have a positive book value, liabilities are small and cash flow is strong. Consider your tax and estate plan.

Common Mistakes

Procrastination – I have too many things to do, so I’ll do this……

Not communicating plans - Make sure the family, partners, employees aware of your plan

Lack of contingencies – Life is full of surprises

Improperly valued – Overpriced is as bad as leaving money on the table.

Successor selected by default – your spouse, kids may not want or be ready

Family disputes - Plans were not communicated and understood

Published by the Wenatchee Business Journal - Tool Box October 18, 2012