Top 10 Financial Concepts for Business Owners: #10 Plan to Pass the Torch

PLAN TO PASS THE TORCH - Begin succession planning long before you plan to retire

 

It is never too early for a business owner to create a plan for an efficient and cost-effective transfer of the business. An effective business transition plan includes a thorough analysis of the underlying business, its management structure, vision, mission, cash flows and profitability for the company.

 

It is equally important to ensure the company is ready for a sale well before making that transition. This can include making sure receivables and accounting records are organized and current and that the company complies with the definition for qualifying for the Lifetime Capital Gains Exemption for at least two years prior to a sale. It is also very important to train the next generation of management who will be able to effectively take over management of the company. Creating this seamless transition can increase the value of the company as it makes it more attractive to a buyer.

 

The most common forms of business succession are an outright sale to another company, taking the company public (list on a stock exchange), vendor takeback financing, sell internally to key individuals within the business and an asset sale and wind down of the business. Consider well in advance which strategy will maximize value for shareholders, while also considering the best outcome for employees.

 

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