At the most basic level, business transition planning is a strategy that can be put into play when a business is sold or changes hands. For company owners nearing retirement, a successful transition plan can play an important part in creating and preserving the value of the business after it has changed hands.
Here are some tips to keep in mind if you want to maximize the return on your investment as you prepare for retirement.
Tip #1: Evaluate Your Market Potential
Take a long, honest look at your business and the broader economic climate when estimating your chances of a successful transition. It may be helpful to include your financial professional in this conversation to provide an objective viewpoint and further insight.
The current and future value of your business can be influenced by consumer confidence at all levels; your community, region, and industry. It will also be helpful to compare the growth of your enterprise versus the industry overall.
Completing this evaluation early, long before you estimate you will begin to transition your business, may help reveal the potential for future growth.
Tip #2: Prepare Your Business
The next best step is to identify anything that may delay or negatively impact the transfer of your business.
This will likely include an evaluation of your personal and business tax returns by a financial professional, as well as a review of any potential local or state tax issues. This is especially important if you have a business presence in multiple states, as it might help avoid potential tax issues.
Now is also an ideal time to contact a tax professional if you're considering restructuring your business for tax purposes. They will be able to help navigate the potential drawbacks and benefits of a restructuring.
Tip #3: Do Your Due Diligence
If your business's financial documents aren’t up-to-date, now is the time to remedy that.
Standard documents to check include:
- Incorporation documents
- Equity ownership records
- Meeting minutes
- Tax classification records
There are several questions you need to ask yourself, as the answers will significantly affect your transition plan: If you do have equity holders, are they entitled to a right of refusal? Additionally, if your business owns any intellectual property, are you certain it has been properly registered?
This is also the time to start thinking about your existing business relationships and evaluating existing long-term contracts or distribution agreements.
Tip #4: Include Your Employees
At some point in the planning process, it will likely prove helpful to share your transition strategy with your employees. Have answers ready for some tough questions and prepare to be as transparent as possible. Securing employee buy-in can be a powerful element to your strategy, and that can lead to essential conversations with those you trust most.
Remember, your business and your own lifestyle aren’t the only things that are going to change with your transition. The livelihood of your employees and their families will be impacted in some way as well, so it is crucial to allow them to voice their concerns. Creating a safe space for open conversations will alleviate worries and ensure the transition happens with minimal upheaval.
Tip #5: Ask For Help
If you are anything like most successful entrepreneurs, you already have a dedicated team of professionals to help your business function properly.
In addition to the CPAs, insurance agents, and wealth managers you may already utilize, an attorney who specializes in estate planning and a business attorney might be valuable additions to your team.
Choosing one key individual, or “transition czar,” to lead the group may also be a smart move. Consider designating a single point of contact to assist with coordination efforts and clear up confusion during the transition period.
Always remember that it’s okay if you’re unsure which steps to incorporate into your transition plan first. Just like your business, managing your transition is a team effort; you can’t do it all on your own. However, the best way to take an active part in your business transition is to seek the advice of your financial professional and other professionals to ensure you create the most successful transition plan possible and enter your retirement smoothly.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.