4 Important Considerations for Succession Planning
The following article was published by "Beyond the Bite," the official blog of the Florida Dental Association.
You have worked tenaciously for the past forty years to build your business and reputation in the community. Your business is a success, but recently, your passion for being involved in the day-to-day operations of the business and meeting with patients has dwindled. Instead, you dream of traveling more and spending time with family. You trust your younger associates to run the business while you are travelling and would likely sell the business to them once you retire. If you are in this situation, then now is the ideal time to formulate a business succession plan.
Planning to transition your business to your associates should start now, not when you’re three weeks away from retirement. An effective business succession plan takes years to successfully execute and should consider the following:
- Mentoring the next generation of leaders. Your associates should be given the opportunity to be "mentored" into transitioning from skilled practitioners to business owners. Cross-training is key to ensuring a successful transition. Associates should be trained in managing staff, dealing with insurance companies, vendors, accounting practices and more.
- Obtaining a business valuation. You should retain a qualified business appraiser and accountant to assist in determining the fair market value of the business. Once a valuation is obtained, a schedule for your payout should be discussed so that the associates will have the funds needed, at the appointed time, to acquire your business.
- Preparing an agreement. Once an agreement is reached, an experienced attorney should be retained to draft an agreement that provides for the transition of the business to the associates. In addition to including the basic deal points, a properly drafted agreement should include certain safeguards for breach, death, and other contingencies.
- Updating your estate planning documents. It is not unusual for your business to be one of your most significant assets, if not the most significant asset. Accordingly, you should update your estate planning documents to consider the receipt of your remaining interest in the business (or outstanding payments under the agreement) by your heirs following your death in the event you die before fully transitioning the business to your associates.
A proper business succession plan is crucial to the viability of your business after your departure and there is much that goes into a well-structured and thoughtful plan. A qualified business appraiser, accountant and attorney make up the team that is an invaluable asset in this process – ultimately assisting in formulating a plan and overseeing its successful execution. As we kick off the New Year and plan for the future, this might make for a good resolution.