How will your business affect Your Business Succession plan? Part One: Sole Proprietor
by Leigh Riley · Filed Under: Business Exit Strategy · Business Structure · Business Succession Book · Sole Proprietor Exit Plan · Sole Trader Exit Plan · business exit quiz
Succession Planning is relevant for every business owner because one day, you will either want to or have to, exit your business.
It is normal for you to hope to sell your business when you exit, and the chances are, you will need the sales proceeds to fund the next phase of your life, or to assist your family in maintaining their livelihood.
How this will occur will depend on the type of business you have. In my experience there are generally three main business categories, and each will require a different approach to their succession planning. This blog will be written in three parts to focus on each of the three main categories, with the first of these being
Category One: Sole Proprietor.
If you fit into the first category, you will have a business that relies on your sole capabilities. For example, if you are a consultant or independent professional (such as a lawyer, accountant, doctor, etc), your business is likely to be the mechanism to sell your expertise and generate your income.
In this situation, you are likely to have a client base that can be sold when the time comes to leave, however the business book alone may not generate the sort of financial outcome you had hoped for. This could leave you short of cash to fund your retirement, or leave your family with a lowered living standard if you leave under stressed circumstances.
If you are to improve your financial prospects when you leave your business you will want to build an asset with a reliable recurring revenue stream that is not entirely reliant upon you (see the concept of building your
business to the “Three Dimensional Zone of Value” discussed in the book “Your Business Succession” because this will yield the most profitable outcome for you when you exit.
If you aren’t sure how to achieve this, you may want to engage a business succession strategy team to assist you (book your free 15 minute consultation), so you can maximise the cash flow and profits you receive when you exit your business.
Building your business value, is only part of the succession plan you want to build, because you will also want to identify your successor to establish agreed terms that secure your position through both planned and unplanned circumstances.
If you are to profit the way you had hoped, your successor will need time to be introduced to your clients, staff, business processes, suppliers etc, so the earlier you can set up the arrangement, the better your outcome will be. Successors who have been given time to establish relationships with these key areas of your business will usually be prepared to pay a higher price for your business because it is more likely the clients will stay on.
If you are not prepared to take the steps to build your business succession plan in this way, you will want to ensure you are building a nest-egg aside from your business to ensure you achieve the financial security you’d always wished for. You may want to engage a financial planner to assist you in building an asset base away from your business.
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In the next post, I will discuss the second category type for succession planning.
Here’s to your profitable Business Succession!
