Business ideas are exciting. The opportunities, possibilities, and potential are often enough to motivate individuals with an entrepreneurial mindset. Business succession planning should begin once an entrepreneur has decided to take the risk and establish a business. Though this may not be as exciting as starting a business, those who own a business should consider the future of the business, its employees, and customers. This brief will provide an overview of business succession planning and exit strategies for entrepreneurs to be future-ready.

What is business succession planning?

The U. S. Small Business Administration (SBA) defines business succession planning as identifying and developing a strategy to transition ownership and management to ensure the continued operation of the business. It is essential that business owners proactively plan in case owners, key leaders, or market conditions change.

Five Considerations for Business Succession Planning

1. Continuity of operations. Every small business has critical positions necessary for smooth operations. In small companies, there can be the owner, a person who manages the finances, and other employees with a set of essential skills. In other words, key operations would be severely impacted if these individuals leave the business for any reason. Small business owners should have a plan if these critical positions become vacant. Knowledge transfer reduces disruptions, learning curves, and builds the capacity of successors to make informed decisions.
2. Consistency of service. Successful small businesses have customers who expect a certain level of service and support. Succession planning ensures that customer relationships are maintained, the quality of service or products is consistent, and knowledge transfer happens when new individuals enter the business. Also, employee retention is essential to upholding business culture, values, and mission.
3. Protection of business value. Diversifying income can be essential to maintaining a steady cash flow. Business owners should consider changes in the market and be able to adapt. Also, strong records are necessary to identify potential issues and mitigate risks or concerns sooner rather than later. Business insurance provides a safety net to protect business owners from unforeseen challenges. Some owners may consider trademarks, patents, and copyrights to protect intellectual property and business value.
4. Reduction of conflict. A succession plan provides a foundation for communication. Stakeholders will have a clear picture of everyone’s roles and responsibilities. The plan can also formalize processes and address ownership transfers, conflict resolution, and decision-making processes.
5. Improved innovation. Small business owners need a competitive advantage. A culture of innovation will enable successors to respond to challenges quickly, be better equipped to adjust to changing conditions, and build future leaders for the business.

Three Business Exit Strategies

Personal reasons, challenges, and financial incentives are reasons that owners consider exiting businesses. The following are three exit options that small business owners may consider:

1. Sell the business. Owners can sell to a buyer who cares about the value of the business.
2. Transfer to family members. Transfer to family members to preserve the legacy.
3. Merger or acquisition. Merge with another company for growth and stability.

Business owners should consult with a licensed attorney or accountant to help them navigate business ownership transfers’ legal and tax implications.

Final Thoughts

When considering whether a small business is future-ready, small business owners should aim for a smooth and successful transition. All stakeholders, including the original owners, future owners, customers, products, and services, should be considered.