There are two options when it comes to choosing a successor: you can go down the family route, or your plan might involve a form of sale or buy-out. We offer some tips for choosing the right successor for your business.
This is often the easiest and more palatable route for a small business owner, as long as there is a willing and suitable family member. There’s a sense of real pride in building a family legacy, and this way you have the option to stay involved even once you’re no longer the formal business owner. However, it’s not always that simple.
You may have dreamt of one day handing everything over to Junior, but if Junior would rather be a pro wrestler, you’ll need a Plan B. It’s a good idea to sit down and discuss the matter, because the fact that your children currently help out in the business doesn’t necessarily mean they will want to take the reins altogether, and they may never have articulated this to you.
On the other hand, just because someone is willing to take over doesn’t always mean they’re suitable. It can be hard to see your own family without rose-coloured glasses, but whomever you have primed to take over should at least be responsible with money, have a clear understanding of business ethics, and be willing to learn from you.
If you do want to pursue this option, you’ll need to invest some serious time into training your successor and giving them all the tools they’ll need to take over from you.
Sale or buy-out
If you don’t have a natural successor within your family when you’re no longer willing or able to run the business yourself, the other option is to sell. This can either take the form of a straight sale or a management buy-out.
A management buy-out is when you sell the business to an employee, often a manager. The advantage is that you know the new owner already has an understanding of the day-to-day operations, and that continuity makes it easier to retain customer relationships as well as staff. You also don’t have to disclose confidential information to a competitor, as you would if your business were being bought by another broker.
If you’re a sole operator, though, chances are that you will need to sell the business to an outside party. If this is a retirement strategy, consider selling while profits are high and business is strong, rather than letting the business dwindle as you reduce your hours and selling only when you no longer want to be involved at all.
If you have a good succession plan in place, and have been contemplating a sale for some time, you have hopefully already built up some business contacts and relationships with potential buyers. It’s likely that the people most interested in buying your business will be competitors in the same market who want to reduce their competition, or who offer other services and want to expand into brokerage. If you have a solid reputation in the field and let it be known that you’re looking to retire, chances are fair they’ll approach you.
In either case, make sure that your financials are up to date and you’re clear on your goals for selling or passing on the business you’ve worked so hard to build up. If you have a clear plan, the right buyer will come to you.
To learn more about your succession planning options, please contact your BDM.