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Small Business Succession Planning: Why is it so Important?

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As we discussed last week, there’s a huge number of small-business-owning baby boomers set to retire in the next decade. And a high number of those are not prepared for the next step.

So if that’s you … and you’re in the same boat as many of your peers … why is it so critical to get ahead?

Well, there are some major implications. As the number of people ready to retire grows, the number of available businesses for sale grows too. The rules of supply and demand are simple. As the sheer number of baby-boomer-owned businesses for sale increases, we’ll be faced with a true buyer’s market.

More supply likely means prices will drop—particularly for lower value businesses. Getting the maximum return for your investment of years of hard work will be much harder.

What you can get when you sell your business affects a few critical factors—namely your quality of life once you leave the company. But it also affects how long you’ll have to stay at work before you can afford to leave. And those are plans you need to solidify now. Not only so you can figure out when to retire, but also how to maximize your business’s value when you do choose to sell.

Knowing all that, why do small business owners do nothing? The biggest factor we’ve seen in our experience as small business accountants is that entrepreneurs are so busy working in their business they never have time to work on their business. We’ve talked about it here and here.

There’s another issue we see often, both in exit strategy planning and in estate tax planning. It can be a very emotional time – and your heart can loom larger than your head.

We’ve seen many small business owners with an emotional unwillingness to think about their personal future. It’s much easier to avoid thinking about retirement and mortality—for the short term, of course. But it can do serious damage for the long term.

Don’t delay your succession planning

Delay is not a viable option. To build an effective and successful exit strategy, you need to start the succession planning process 3 to 5 years before you want to sell.

Not having enough time is one of the biggest reasons small business owners don’t meet their financial goals. And when you mix procrastination with a growing army of retiring baby boomers, the odds are certainly not in your favour.

Make sure you have the right succession planning model in place to ensure a successful succession when the time comes.

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