Biz Owners Need a Succession Plan
Over 70 percent of business owners polled in a recent survey for insurer Nationwide noted that they are not planning to retire, don’t know when they’ll retire or do not plan to retire for 11 years or more.
This isn’t a good thing, since business succession is key to the survival of the business. However, there are reasons why business owners don’t plan:
A majority (55 percent) of business owners who do not plan to retire report that they love their business too much to do so.
Even more Boomers (68 percent) indicate this is a major reason for delaying retirement.
The other reasons for postponing retirement include not feeling financially stable enough to retire (24 percent) and not trusting anyone else to run their business (17 percent).
Interestingly, the same survey noted that two in three business owners do not have a succession plan in place, with almost 40 percent of them lacking a clear understanding of their need for one.
Counterintuitively, twice as many Boomers as Millennials have not established a business succession plan (74 percent vs 37 percent).
The Need to Have a Plan
Should a business owner face a serious illness or untimely death, having a business succession plan defined would facilitate a smooth and controlled transition, create certainty about the price, terms and financing of the business and provide a sense of security for surviving family members.
Many business owners are also unaware that most states will use their authority to determine who receives a person’s property if a plan is not in place. Sixty percent of the business owners surveyed were unaware or unsure that, without a defined plan, the state could determine their business’ future.
Getting Started
Business owners without a plan can simplify the planning process by breaking it into five manageable steps working with their financial advisor:
Step 1: Set goals and objectives.
Step 2: Contact your advisor to determine the fair market value of the company through resources like Nationwide’s Business Valuation Tool.
Step 3: Consider viable options for the business and identify how the options would play out in a disability, retirement or death scenario.
Step 4: Develop a plan and execute documents in partnership with an advisor, attorney and accountant.
Step 5: Fund the plan.
This should provide food for thought for small business owners everywhere.