Dreaming of retiring and spending your free days at the beach? Rather than walking away from your IT consulting business, get a return on your time and effort by developing a succession plan. “The sooner planning starts, the better,” says Lee Lambert, director, Alameda County Small Business Development Center. “The ideal is to have a five-year transition with a step-by-step plan to educate employees and prepare the successor. Business owners that are well organized will preserve more value in their companies.” Get started with these five steps:
1. Identify a successor: Do you plan to sell your business to an employee, a family member or a third party? An employee may be your best candidate as he or she is familiar with the people and the processes.
2. Build the brand: You’ve probably been a major contributor to the company’s sales and may be the single point of contact for your customers. Start playing down your contributions and building up the business. You want customers to start viewing your company as a brand and entity that is much bigger than one individual.
3. Transfer relationships: Introduce your successor to all your customers and assure them that the new owner is worthy of their trust and confidence.
4. Develop a succession plan: Create a business plan that defines the transition of responsibilities from the current owner to the successor. Consulting with a tax advisor is critical for maximizing the cash available to the departing owner. Also include the customer list, purchase history and contact information for the final buyer.
5. Engage a third party to guide the transfer: An attorney, CPA or retirement planner is a good choice to serve as “quarterback” for the exchange, set expectations and ensure that the business ownership transfers hands smoothly.
This type of long-term planning is rare, Lambert admits. “Oftentimes, an owner’s unexpected health event takes down the business. It’s usually not a well-planned process, and much of the potential value of the business can be lost, as new management is not ready, and a ‘fire sale’ is forced to take place. No one benefits when that happens. Getting started early is best for the owner, the buyer and the business,” Lambert advises.