With more business owners crossing the threshold of retirement age, succession planning is becoming a major discussion
The 2015 US Family Business Survey, conducted by PricewaterhouseCoopers, found that only about 27% of private businesses have done any exit planning in preparation to pass the baton to the next generation. Even fewer have a documented handoff plan in place, which is surprising considering that more than $10trn in boomer-owned business assets will be passed down or sold by 2025, according to an article published by Morgan Stanley.
“Unfortunately for many unprepared business owners, as this wave of business transactions gets going, it may create a ‘Buyer’s Market’ in which only those who have planned well will experience a successful exit,” says Matthew Shafer, a Financial Advisor and Senior Investment Management Consultant for Morgan Stanley.
Business owners usually tie their establishments strongly to their identities, and they are usually preoccupied with day-to-day business concerns, which is why they put off their succession planning.
However, lack of planning may leave owners financially and emotionally unprepared for the inevitable, which could lead them to sell off their business for less than it’s worth and suffer subsequent emotional stress.
The problem has to be nipped even before it becomes a bud. Shafer recommends that owners figure out what they want to do after giving up their business, whether it’s continuing to play a role in the business or leaving it entirely. He also advises them to focus on making it more attractive to potential buyers, which includes addressing “curb appeal” issues and seeing that the business meets industry standards.
Finally, he tells owners that they should get a team of consultants–which, importantly, should include a financial advisor–to iron out the details.
“Get some smart people in a room to do some discovery," Shafer suggests, prescribing a two-year timeframe from the start of planning to the actual handoff. “Tell them about your business and your goals and get their advice for getting there.”
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