Many business owners procrastinate putting a well-thought-out succession plan in place, but as the baby boomer generation continues to age and prepare for retirement, it is more critical now than ever. The reasons to put it off are understandable, as it can be challenging to plan for your replacement and deal with your mortality, but a sound exit strategy should not be left as an afterthought. No matter how uncomfortable, you really need to start thinking about it now.
It is always better to be proactive versus reactive, and at MGA, we practice what we preach. While our founding partners, Russ and Paul, are actively engaged in the business and are as client-focused as ever, they have taken definite steps to prepare the firm for their retirement. Because of their proactive planning, we are all assured of what comes next for MGA.
In 2013, we added a new partner, Brian, who is not only 20 years younger than our founders but who shares our same values and goals regarding the future of MGA. In addition, the firm is identifying and training future leaders to join the partner group. By thinking ahead and allowing all of our partners many years to strategize and work closely together for the road ahead, Russ and Paul have never felt more confident in the direction MGA is heading — even after they are gone. “We’ve built something amazing here at MGA, and nothing would make us prouder than for it to prosper long beyond our years at the firm,” says Russ.
5 common reasons why business owners don't have an exit strategy AND critical reasons why you should put together a proactive plan today
- Not enough time.
Owning a business is time-consuming. There are deadlines to meet, agreements to make, and day-to-day tasks to juggle. Succession planning is often left on the back burner, knowing that you can always deal with it later.
This type of procrastination can lead to rushed decisions, and rushed decisions can lead to an outcome that is not beneficial for you or your business. If you are planning to sell your company, you may get a lower price or pay more in taxes than you would have if adequate planning had been done. You also need to keep in mind that life circumstances can radically change, meaning that in a worst-case scenario, “later” may never come. Succession planning should not happen because of an unexpected death or disability. Without a solid plan in place, the future of your business could be left in jeopardy.
- No desire for retirement.
Many business owners just never want to retire. However, with that come several concerns:
- You worry that you will become bored in retirement, as your company gives you a sense of purpose and drive.
- You are concerned that your company will no longer flourish without your leadership.
- You don’t want to stop working in and for the company you spent years building, and the idea of giving up control is very challenging.
While wanting to hang onto the reins of your company is a very natural thing to do, letting go is almost always a better approach. With proactive planning, you may be able to stay on as a business consultant, giving you a continued sense of purpose and drive. If you plan to pass on the business to your children or grandchildren, you can play an active role in their training and development, ensuring that your leadership and vision will continue to steer the company forward. In these ways, putting a proactive plan in place now actually gives you more control over the end result, helping you let go with confidence.
- Disregarding tax issues because they're too complicated.
It’s easy to overlook the importance of succession planning because the details seem complicated and overwhelming. How should you structure your transaction? When should you sell? What are the tax implications? Should you sell assets or stock? Should you consider transferring all or some of your ownership to a trust for estate planning purposes? The details of a succession transaction can be incredibly intricate to navigate.
That’s why seeking professional tax advice well in advance of the actual sale is always the best option. You will be making several decisions that will affect your tax bill, and without the right structure, your company could potentially wind up with unknown, costly liabilities. Managing the sale in a tax-wise manner can save you a great deal in the long run — not only with income and capital gains taxes but also with estate and gift taxes.
- Who is going to take over?
In many situations, there is not a clear-cut successor. One of your partners could take over, you could sell to employees via an Employee Stock Ownership Plan (ESOP), or you could sell to a third party. In the case of a family business, there are even more options to consider. If you have multiple children, which one is going to run the company? Does he/she have the necessary business skills and leadership to succeed? Would a legal succession plan cause a family feud?
Without all the answers, you may end up doing nothing — but this is a dangerous path to take as the company you spent years building could be in jeopardy without a solid plan in place. There are many options to consider for ownership transfer, and it is essential to seek professional guidance when exploring the possibilities. Don’t leave the outcome to chance.
- Not financially prepared for retirement.
While building their businesses, many owners put off making sufficient contributions to their retirement plans, leaving them with inadequate savings when it’s time to leave the company. If you plan to pass the business on to your children rather than sell, what will generate income for you during retirement? Wouldn’t you like to enjoy your later years rather than feeling you have to keep working because you haven’t planned adequately?
By creating a proactive plan, you can take care of your retirement and your heirs. With appropriate financial strategies, you hopefully can retire comfortably because you’ve planned for the eventual sale or transfer of your company.
How MGA can help you plan
At MGA, we don’t like to see business owners procrastinating when it comes to succession planning. We want to help them create a proactive exit strategy — a critical factor in owning a business. We cannot stress that enough. You should feel confident that the hard work and many years you put into your business will carry on even after you’re gone.
Moreover, we understand the challenges and questions you may face as you begin to plan for succession, such as tax implications, financial planning strategies, or answering the hard questions and getting everything in place for the next phase of your business. We’ve been there, and we know. Let us be the experts to help you along your path as you plan for the future.
As always, we’re here to make the complex simple.