The Numbers Don’t Lie
Succession planning is one of the most critical yet often overlooked aspects of running a business. According to the Small Business Association (SBA):
- Only 30% of family-owned businesses in the U.S. survive into the second generation.
- Just 12% make it to the third generation, and a mere 3% last into the fourth and beyond.
Without a clear plan for succession, businesses are at risk of significant losses in unexpected events, such as the sudden passing of an owner or strained family relationships. These unforeseen circumstances can derail years of hard work and leave owners scrambling for a solution.
Here are some key statistics to consider:
- Over 90% of U.S. small businesses are either family-owned or have the potential to become family businesses (Sage Journals).
- An estimated 30% of small businesses successfully sell, leaving 70% without a buyer or succession plan in place (Exit Planning Institute).
Source: Teamshares.com
Failing to plan for succession doesn’t just put your business at risk—it can also jeopardize the legacy and financial security you’ve worked so hard to build.
How to Know When Selling Could Be Right for You
Not sure if it’s time to sell or how to prepare for succession? Start by evaluating your current position and goals:
Growth Trajectory:
Is your business still growing significantly, or has it reached a plateau? Are there untapped revenue opportunities or new ideas yet to implement? Understanding your growth stage is critical for determining your company’s value and planning your next steps.
Work-Life Balance:
Have you reached a point where you’ve achieved professional success without sacrificing personal goals? Or are you feeling ready to explore new opportunities, whether that means staying involved in the business or stepping away entirely? Reflecting on what you want for your future can help clarify whether to stay or move on.
Challenges and Long-Term Goals:
What obstacles are preventing optimal growth today? Would selling now, or in the near future, unlock opportunities for your business or reduce stress for you as an owner?
By answering these questions, you’ll gain clarity about whether selling is the right move—and if now is the right time.
Creating Value: What Is Your Business Worth?
Understanding the value of your business is a crucial step when preparing for a potential sale. There are several approaches you can take to determine its worth:
Asset Valuation:
Calculate the value of everything your business owns, including equipment, inventory, and real estate.
Revenue Assessment:
Evaluate your annual sales and determine whether your revenue has shown consistent growth over time.
Discounted Cash Flow:
Project your business’s future cash flow and apply a discount rate to estimate its present-day value.
Beyond the Numbers:
Consider intangible factors like your company’s niche, competitive advantages, and the audience or partners who might value your unique offerings. These elements often hold significant weight for potential buyers.
Why Proactive Planning Matters
Succession planning isn’t just about finding a buyer or successor—it’s about ensuring the business you’ve built continues to thrive, whether under new leadership or as part of your legacy.
Your financial advisor plays a vital role in this process by acting as a bridge between your accountant, tax planning strategies, and broader financial goals. They can offer unbiased guidance, helping you:
- Minimize tax impacts during a sale.
- Identify potential buyers or succession options.
- Ensure your financial plan aligns with both your personal and professional objectives.
Having an experienced third party focused solely on your unique needs can make the difference between a smooth, successful transition and missed opportunities.
Take Control of Your Future
Don’t wait until circumstances force you to make a decision about your business. Start planning today to protect your legacy and maximize your options. Whether you’re considering selling, passing the business on, or simply preparing for unforeseen events, having a thoughtful plan in place ensures you’re ready for whatever comes next.