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After they’ve spent years building a successful company, many small business owners begin to think about cashing in on the work they’ve done, or passing the business on to a new generation. And that’s likely a pretty common concern, since just over 50 percent of owners are over age 50, according to the Small Business Administration.
If you’re a business owner who’s thinking about your next move, the California Society of CPAs (CalCPA.org) offers advice on some of the issues you may face and the solutions you can put to use.
Get Started Now
Even if you’re far from retirement, it’s never too early to begin thinking about an exit strategy and taking steps to make sure yours will succeed. Expect the planning to take a while, and be prepared to revisit your plan regularly to determine if it’s still up to date, but do get started.
You should begin your planning as early as 10 years before planning to leave the business.
Think About Financing
Even the best succession plans will not work if you don’t have enough money to retire or move on to another business or career by your target date. That means that it’s important to make regular contributions to your own retirement account throughout your career.
Your CPA can offer information on tax-advantaged retirement plans designed especially for business owners. Also consider what’s known as a “key person” insurance policy, one in which the company receives the insurance payoff in the case of your death or disability.
While this insurance won’t replace a sound succession plan, these funds can be used for expenses until the business can be sold or passed down in an orderly manner.
Identify a Successor
Some owners are so deeply involved in every aspect of their business that it can be tough or impossible to find an adequate replacement when they retire. There are several steps you can take to avoid that problem.
First, throughout your career, delegate as many tasks as possible to your staff. This will offer you more time for executive decision making and your people the chance to take on different responsibilities and expand their knowledge of the business.
Second, identify promising employees and begin to groom them for leadership. Include them in client meetings and in your strategic planning so that they are ready to take the reins—and maintain the company’s success—when you decide to move on.
Be Ready for a Sale
It’s also wise to regularly evaluate how your company would look to a buyer if you decided to sell, especially if you don’t have an internal successor in mind.
Are your facilities and equipment up to date, including your technology? Can you demonstrate the demand for your products or services? Do you have current financial statements that would paint an appealing picture for a potential buyer? These are some of the questions you should consider.
Once again, your CPA can help you understand what a buyer might expect and offer ideas to put your best foot forward.
Think About What Comes Next
What would you like to do after you leave? Start another business? Put your experience to work at another company? Travel? Take a much-deserved break? Be sure to take your dreams for the future into account in your succession planning so that you have the best chance of achieving your goals.
Your CPA Can Help
Your local CPA acts as a trusted business adviser to many organizations in your community. Turn to him or her with all your pressing business questions about issues of importance to you today and in the future. Visit Find a CPA to find one near you.
Copyright 2018 American Institute of Certified Public Accountants.
The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program. Listen to podcasts with more financial tips.