Where do you picture yourself in twenty years? Thirty years?

Do you want to be sitting on a beach in Tahiti sipping pina coladas? Do you want to be an active part of your business? Do you still want to own the business, but not be active in its daily opera-tions?

What are your goals? When do you want to achieve them?

Whatever your vision for the future is, you can’t create it without succession planning.

Succession planning is a part of your exit strategy. It helps you better plan your business, so you can create the business and the life you want.

Succession planning is a combination of HR and finance. From the HR side, succession planning means identifying key individuals and roles in the organization that you need to fill for the eventual reality of people retiring or otherwise leaving the company.

You know I’m the finance gal, so that’s what I’ll be focusing on today.

From an owner perspective in a small business, it’s important to look at what the owner provides to the organization to understand how their role will be filled. Not only how will the role be filled, but how is the exit strategy going to be executed? What are the possibilities of fallout from the exit strategy?

This can change over time.

We’re humans, not robots. Over the years, your goals may change and your vision of the future will likely evolve. That’s why I check in with my clients every year.

Maybe you pictured yourself on the beach but now you realize you’re happy as a clam as an active part of your business and want to stay involved. Your goals will change how you plan, and what you plan to ultimately do with the business.

The key is this: whatever your goal along whatever timeline you imagine, you need to make financial plans to achieve it.

If you want to sell at some point and cash out, you need to make sure you have good operating data to show a potential buyer and maximize the value you glean from the sale of the company.

Maybe you want to sell to an employee or group of employees who are interested in taking the company forward rather than an outside buyer. In that case, you’ll structure things differently. Of course you still want good operating data, but these people have been part of the company for a period of time so they understand how to operate it from the inside. The plus to inside buyers is that they already understand the internal dynamics and culture, so there’s typically a smoother transition.

Without further ado, here are the 3 key financial considerations when it comes to succession planning.

1. Key person insurance. This is critical, especially if the owner is key to the success of the whole operation. I had a conversation with a client the other day who was asking me what she needs to know about key person insurance and what amount is right for her. What’s important here is to look at 2 things:

  • What would it cost to replace your talent (everything you do) in the business?
  • Could there be some disruption in the business? When you leave, might you lose clients or see your sales dip? Would certain employees leave if you left?

2. Debt. Could there be debt involved? If there’s a family succession plan, how does that trans-fer of ownership get funded? If you’re going to sell, you want to make sure the company is adequately funded so you don’t get halfway down the aisle and have to call off the wedding because the buyer can’t get financing.

3. Name equity. If you’ve owned your business a long time, you have substantial name equity associated with it. What would a name change do to customers? Could they still find you? In to-day’s internet society, you may get lost unless you keep certain things in place.

The bottom line is this: succession planning will help you reach your long-term goals for what you want your life and business to look like.

A lot of people don’t like to think about this. It can be uncomfortable and scary. But it doesn’t have to be. When I work with clients, I’m with them every step of the way to develop and execute a long-term plan for success in their life and business.

If you don’t have a succession plan, you need one. Give TurboExecs a call and let’s discuss how we can help you gain peace of mind, knowing that your vision for the future is unfolding seamlessly.