The current health crisis has rocked small businesses, and many have shuttered due to slim margins or lost profits. While things may be tight for your business, you may have enough assets or revenue to stay open. Yet, you will likely start thinking about how to preserve it in the long-term. If you do not have a succession plan for your business, now is the time to create one.
Understanding succession planning
When you retire from running your business, you will need to figure out how it can remain viable without your presence. If you do not have any relatives interested in or qualified to take it over, you might consider selling it to a business partner or an outside party. But if you own a family business or want to pass ownership of your business to a family member, you can create a succession plan to ease its transfer.
When creating your plan, you will need to account for how your industry could change in the coming years. By doing so, you can give your successor clear guidance on how you want your business to adapt to these shifts. If your business is currently growing – or was before the health and economic crises – you will want to outline any goals you have for growth and acquisition, too. Furthermore, you must account for how much value your presence brings to the business. If any successor could diminish it, no matter their competence, you will need to weigh the risks of it operating without you.
The benefits of succession planning
The earlier you start succession planning, the more time you can spend preparing your successor for their role. Doing so will help them fill your shoes effectively if they need to take over for you without warning. Succession planning can also lead to tax savings. If you retain full ownership of your business until you die, it could lose money through estate taxes upon its transfer, especially under the Tax Cuts and Jobs Act (TCJA) which is scheduled to expire at the end of 2025. By transferring part or all your interest to your successor during your lifetime, you can decrease the total burden and preserve the family business..