When Is The Best Time to Start Planning a Family Business Transition?

When Is The Best Time to Start Planning a Family Business Transition?
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One of the ways we help owners lay the foundation for a succession plan that achieves their objectives is a tool we call The Big 6™. When owners answer these six questions, they begin to chart a path to the transition they desire. The Big 6 questions are: Why, What, Who, When, How Much, and How. (Click here to read more about the questions.) When is the best time to start planning a family business transition?

Today the topic — or the question — is When.

Please fill in the blank: It’s never too early to start planning _________. Maybe the first thing you think of is “my retirement,” or “how I’m going to send my kids to college,” or “to eat right.” All good answers, yet when the topic is a business transition, as transition strategists, we often hear the opposite statement: “It’s far too early for me to start planning for the day I leave business.”

Some advisors will argue that it’s never too early to start planning a business transition, and, in a sense, they’re correct. Choosing the proper entity that is most advantageous in the early stages of a business (without thinking of future consequences) and giving equity to a valuable employee in lieu of cash during the early years of a business are just two actions that can limit an owner’s options when they want to transition out of their businesses.

When is the best time to start planning a family business transition? The Gift of Options

Rather than enter the “never too early” debate, our position is simple: The more time you give yourself to plan the transition out of your business, the more options you have.

We also know that focusing exclusively on when to begin planning a transition is just one part of the bigger picture. As we help owners identify their Whens, or establish milestones for their transition journeys, we offer three perspectives that most owners never consider.

  1. When can be a valuable shield. The dates owners choose to begin and complete their transition journeys can protect their own (and their families’) financial security, their relationships and Next Adventures™, their successors, their companies, and their legacies.*
  2. Many elements contribute to a When. Setting dates requires owners to balance: 1) their own financial rewards, personal agendas, and desires, 2) their successors’ preparedness and thirst for ownership, and 3) their company’s ability to succeed under new leadership.
  3. There is more than one When. Rather than a single date, owners set multiple dates, usually over years, as they prepare their successors to assume ownership and their new role.

Your When Can Serve As A Shield

Ideally, the dates you choose to begin and finish your transition journey protect you, your family, your successor and your company.  When is the best time to start planning a family business transition? The dates you choose should protect you by giving you more possible paths that lead to the transition you desire, and more time to transition financial obligations to a successor. Dates can protect your successor by giving them time to prepare to lead and protect your business by leaving it in the hands of a successor who’s capable of running it well.

The Many Elements Of A When

Setting a date on which you’d like to leave your company and start your Next Adventure isn’t quite as easy as picking a date on a calendar. If it were, fewer owners would keep resetting the I’ll-leave-my-company-in-five-years clock.

When setting a date to transition, we suggest that owners consider:

  • How prepared they are financially and personally.
  • How prepared their successors are to assume leadership.
  • Whether their successor’s timetable for taking the reins aligns with their readiness to turn them over.
  • Whether key employees, customers, and contracts are likely to remain after owners leave.
  • Whether their businesses can generate adequate cash flow to support the transition.

More Than One When

Business succession is a process, so your When is not a single calendar date. Instead, it likely consists of multiple dates spread over years as you prepare your successor(s) for leadership and ownership. A one- to five-year process is not uncommon, and we’ve created transition timelines that span as many as 10 years. If your company has more than one owner, it is likely each owner has his or her own When, and each person’s When also involves multiple dates.

Multiple dates are not at all unusual, because preparing a successor to assume ownership involves a sequence of events or series of stages that you can extend or collapse as you go along. For example, the time you expect it will your successor to complete a task (e.g., become competent reading financials) may not be realistic.

These three perspectives (that When can be a shield, that there are many elements of a When and that there is more than one When):

  • Can help you see your transition from a broader perspective.
  • Minimizes the number of detours on your road to your Next Adventure.
  • May prompt you to decide to maximize the odds of successfully reaching your Next Adventure by planning your transition sooner than you anticipated.
  • Positions you to protect not only your Next Adventure, but also your family’s financial security and your relationships, successor, and company.
  • Can give you the clarity and confidence necessary to tackle the next (and last) two Big 6 questions of How and How Much.

If you’d like to learn more about how to set your When, learn about ways to work with us.

* Your Next Adventure is your life after you leave your business.

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