According to information released by the Small Business Administration, more than half of all small business owners are 50-years-old, or older. Financial planning experts say that more than three-quarters of all small business owners intend to sell their operations, in order to fund retirement; yet, less than a third have an actual written succession plan. As Ben Franklin once said, “Failing to plan is planning to fail.”
One reason why so many business owners fail to plan is that they share common misconceptions about succession planning. While the list is endless, here are four of the most common.
No. 1: The “Scarlett O’Hara Thought Process”
At one of the primary junctures of “Gone With the Wind,” Scarlett says to herself, “I can’t think about that right now. If I do, I’ll go crazy. I’ll think about that tomorrow.” All too many business leaders are like “Miss Scarlett.” Business owners avoid succession planning, like other clients avoid estate planning. Both remind one of one’s mortality. Both sometimes involve having to make tough decisions. In a business, succession issues never resolve themselves. They never go away. Don’t procrastinate. Plan now.
No. 2: My Successor Will Be Ready to Take the Reins When I’m Ready to Give Them Up
Many business owners are so used to making decisions, so accustomed to determining when and where and how a business issue is to be determined, that they forget one important factor in succession planning: Timing. If you are going to turn the reins over to someone, he or she has to be available and competent to accept that responsibility. Particularly if taking on new responsibility means longer hours or a geographic move, the new leader needs some flexibility. Does the “target” have small children whose needs must be considered? Are there other concerns that need to be addressed? Just because the business owner is finally ready, it doesn’t always follow that everyone else is, too.
No. 3: The Family Will Always Buy Into My Plan
As noted above, many business owners are insular in their methods. They “think” that they have involved others in the overall operations of the business. They may have withheld all important decisions for themselves, however. These sorts of “leaders” are often surprised when the rest of the family doesn’t see eye-to-eye with the succession plan. If one child has been involved in the operation of the business and another has remained on the outside, a plan that calls for equal ownership of stock between the two may fall flat with the insider. Succession planning needs to be discussed among all those who will be affected. The owner may have been used to having his or her way. In succession planning, that needs to change.
No. 4: Financing the Buy-Out Will Be Manageable
It is one thing to decide to turn over the reins. It is often another to have in place a mechanism that balances the needs of the owner to “cash out,” and the needs of the new business successors to stay invested in the day-to-day operation that has made for success. The value of the business wasn’t built overnight. Pulling retirement funds out may be easier said than done. Here, it ordinarily pays to retain experts: Insurance people, business operations specialists, CPAs and, most particularly, skilled attorneys. While the business owner may have “gone it alone” in building the business, now is not the time for a solo. Build a solid transition team.
CKB Vienna LLP Has the Expertise to Assist in Succession Planning
CKB VENNA LLP has the experience necessary to help any California business with its succession planning issues. We can combine your need to address business concerns with your family’s needs for long-term estate planning. We have represented small to mid-size businesses and their owners in many situations. We work well with other experts, and can help you guard the important assets that have been accumulated through a life of hard work. Our team understands that complex legal issues often go hand in hand with personal, family concerns, and we strive to give you the sort of representation that you deserve. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909-980-1040, or complete our online form.