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Succession Planning is Critical for Every Small Business Owner

Photo of author, Teresa Michaels, CFP®.
Teresa Michaels, CFP®
Financial Strategist and Regional Manager

The landscape of American business has changed dramatically over the years. In fact, just this year the coronavirus pandemic has established “new normals”: remote working, socially-distanced protocols, virtual meetings and conferences. Small businesses, however, remain an important part of the nation's economy.

According to the Small Business Association Office of Advocacy (U.S. Small Business Administration Office of Advocacy - 2019 Small Business Profile), in 2019 there were 30.7 million small businesses. A small business is defined, for this purpose, as a firm with fewer than 500 employees. Small businesses make up 99.9 percent of U.S. owned businesses and 47.3 percent of United States Employees. Those numbers are staggering.

Small business owners invest a great deal of time, energy and money into their business, and it can easily be the largest portion of their investment portfolio. All too commonly, business owners direct the lion’s share of their effort toward day-to-day activities of the business and fail to capitalize on the value that they have worked so hard to create in preparation of retirement.

There are countless reasons for a business owner to have a well-thought-out succession plan. One of the main reasons, however, may be to permit the owner an increased level of control over their own future as well as the future of their business.

Business owners must exhibit the same discipline when buying or selling a business as investors exhibit when buying stocks and bonds. When is it the correct environment to buy into or sell out of a particular business? There are many questions to take into consideration. Among them include:

  • What is the forecast for the industry in your region?
  • What is the value of the business?
  • What are the options for an exit strategy?
  • Who are likely candidates to take over the business?
    • Is there a family member interested in running the business? A common mistake is assuming that a family member has an interest in running the business. Don't make assumptions.
  • How can the buyer see the value of the business and the long-range impact on their financial plan as well? A qualified financial advisor will assist in creating an illustration for the buyer to see the impact that owning a business can have on their financial strategy.
  • What do I do with the proceeds once the business is sold?
  • How can I maximize the use of the proceeds from the sale?

Thinking through valuable lessons learned from working with business owners to transition their business, I would like to share one valuable piece of advice. Surround yourself with a knowledgeable team:

  • Accountant: To assist you in understanding the tax implication of a transfer of ownership position all parties to receive the most favorable tax treatment
  • Lawyer: To assist in protecting the buyer and seller as well as drafting the legal documents necessary to complete the transaction.
  • Financial advisor: To serve as liaison with each supportive role and create a plan to map out the impact of a transaction today as well as the impact on the probability of success in your retirement years.

I feel an immense sense of pride and satisfaction when working through transactions with clients to complete the sale of their business. The value that we, as advisors, add to the process is endless. From coordinating efforts of the team to helping structure the course of the transaction to keeping everything on track. Having a financial advisor in your corner can be critical to achieving a successful outcome for all.

If you find yourself with an existing succession plan that needs updated, or you’re ready to take the next step in creating a succession plan that is right for your unique situation, McKinley Carter’s advisory team stands ready to help.


Additional resources:

Death & Business in 2020: Succession Planning Tips for Small Business Owners

7 Tax Strategies to Consider When Selling a Business

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