Business succession is about living, not death.

Business succession is about living, not death.

Only 30% of businesses survive the owner and 67% of business owners fail to plan for succession.  Most businesses don’t survive because the owners never intended to pass them on.  The owners who want their business to continue often avoid planning for succession, the way most people avoid writing a will.  They perceive the outcome as an admission of their mortality.  It is obvious that businesses with a succession plan have a better chance of surviving the founder, but should the plan only kick into effect when the owner kicks off?

Rather than relating succession planning to kicking the bucket, approach the effort as an item on your bucket list.  For example: I’d like my business to provide me a few months vacation per year, I want my business to offer me a comfortable retirement, I’d like to give my children the chance to feel the rewards of a successful business, I want to look down from heaven and see my heirs achieve their dreams even if they don’t want a part of my business.  This list of wishes is about a lifestyle and leaving a legacy, none of them is inspired by death.

Many businesses are destined to die because of an ever changing marketplace, but those that can support a household can likely expand to satisfy the needs of the next generation.  First generation business owners should teach their children the value of capital assets and the rewards of entrepreneurship.  The best lesson plan for that is a thriving business that produces above average returns and consistent equity growth.  The first generation should concentrate on increasing the value of the business and not personal income.  Equity is enhanced with multiple productive employees.  Some of them could be second generation.  As the kids show their aptitude, watch for the one who accepts increasing responsibility.  They are the likely successor.  Nurture their leadership skills and prepare them to take over.  Test their ability by taking extended vacations.  Owning a successful business that your children want to inherit is a kick.

One way to accommodate a single business successor among a slew of siblings is to sell the business to that child.  The sales proceeds can offer you a retirement and continuing income to the other heirs, upon your passing.  Use a market based pricing model and not a discounted cash flow to determine the sales price.  To be fair to the successor and your other heirs, consult a business broker or independent business valuation expert, to arrive at the right price.  A final warning, avoid getting too many kicks from champagne.  Substance abuse ruins many businesses and families, if you’re heading down that path, kick the habit.

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