Q&A: Develop a Succession Plan to Fit Your Small Business

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By Bret Hodgdon, CPA, CFP®, CFE, CGMA

Many business owners shy away from putting a succession plan into place because they do not intend to retire in the next 2-5 years. In actuality, having a detailed succession (or exit) plan in place is essential to the future profitability of the business you’ve worked so hard to build and should be started at least 5 years out.

Q: How do I know for sure when it is the right time to exit my business?

A: You have spent years developing a successful business and you want to be sure that you have all of the right people in the right place at the right time when you are ready to exit and retire. This process, succession planning, is the key to ensuring the continued success of all areas of your business. There are a few key factors to consider as you determine the right timing for you:

Is there a capable successor in place?

Is this business prepared for ownership transfer? The business should be valued and assessed. What are the key positions and what are the job descriptions for those positions? Is there a strategic plan for transition in place? Have buy/sell agreements been developed?

Are you ready as an owner to let go of control? Have you looked at your future without your business?

Q: I have considered the development of my succession plan but I’m not sure where to get started. Is there a general checklist to outline a succession plan?

A: As I’ve worked with Vermont business owners over the last 15 years, I’ve come to appreciate how unique each has operated and the various factors involved when it comes to handling the delicate matter of succession planning. There is no “one plan fits all” when it comes to the transfer of a business but there is one common feature among all transfers: Proper planning is critical to success – and the sooner, the better.

Q: What can I refer to for additional information about succession planning?

A: SCORE has done a great job of outlining a few high-level pieces of the succession planning puzzle:*

1. Choose Your Successor

2. Develop a Formal Training Plan for Your Successor

3. Establish a Timetable

Q: Are there areas of my financial statements that I should be focusing on now?

A: This is one area you should look at well in advance of when you anticipate getting out. For example, the balance sheet should be “cleaned up” to eliminate “personal” assets. With regard to the income statement, there should be a close monitoring of expenses and any “personal” expenses should be avoided.

Davis & Hodgdon Associates has offered entrepreneurial advisory services including succession planning to Vermont businesses for over 25 years. Our associates are committed to working with and supporting our clients through each phase of their business. From a start-up company to a seasoned corporation, our firm provides the guidance and expertise to help businesses succeed and grow.

*Referenced article published by SCORE, January 2012: www.score.org/resource/developing-succession-plan

RUTLAND: 802.775.7132    //    WILLISTON: 802.878.1963    //    www.dh-cpa.com

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