It’s one of those subjects that many business owners would prefer not to think about: Business Transition Planning. If you talk to small business owners, many of them would probably say that they aren’t planning on retiring because they need the income it provides them or they just enjoy working.

However, as we’ve discussed in the past, not having a transition plan can cause numerous problems for a business and its owners, like leaving others involved in the company vulnerable, including family, employees, and customers.

This is especially true if the business is heavily dependent on the owner. Let’s look at some of the main reasons that business owners don’t plan for their transition and why this is a big mistake!

  1. They’re busy running their businesses – Most small business owners dedicate the majority of their wealth and effort to their businesses. Planning for retirement or an emergency situation often takes the back burner because owners are consumed with the day-to-day operations of their businesses. Oftentimes, owners mistakenly think that it will all work itself out in the end.
  2. It’s too time consuming – Transition planning does takes time. It is likely that this process will take at least several months and possibly a year or more. This is time that many business owners feel they don’t have when they’re in the thick of running their businesses on a daily basis. Owners need to keep in mind that transition planning is a process, not an event. It includes defining the owner’s goals, determining the readiness of both the owner and the business, and figuring out the options that will help them meet those goals. Typically, we tell business owners they need to start planning at least two to five years before they want to transition out.
  3. It seems too final – Planning for the next phase of life or for an unexpected death can seem kind of morbid for anyone. It may seem akin to planning your own funeral. Few people want to think about their own mortality, but none of us knows what tomorrow will bring, which is why planning for what you leave behind when the inevitable happens is so important.

We’ve heard all of these reasons numerous times. And we understand that thinking about their eventual end in their business can be a difficult and emotional time for business owners, but it doesn’t need to be!

Many owners believe that their involvement in the company must end and they have to turn over the reins to someone else once they start planning for a transition. This is not necessarily the case.

Some may choose to transition out over time and gradually relinquish control when they feel the time is right. And most importantly, should the unexpected happen, the business and those involved with it will be able to continue. Let’s look at what business transition planning gives business owners:

  1. It provides peace of mind – Developing an ownership transition plan not only provides owners with the roadmap they need to achieve their own goals, and it can provide hope and a plan for the next generation of company leaders.
  2. It provides the ability to maximize wealth – Transition planning enables owners to develop a true strategy for the future, determine the best ways to increase business value and minimize taxes so that they keep more of their wealth.
  3. It provides a way to achieve long-term goals – Owners often have both personal financial goals as well as non-financial goals. Transition planning can help owners determine how much money they will need from the sale of the business to maintain their lifestyle and carry out their activities in the next phase of life. It can also help owners protect their family and employees while enabling them to diversify their assets.

Having a transition plan in place can actually help small business owners increase their long-term business success, and it can help guide the owners on how the business should be structured and managed on a day-to-day basis.

One key component of a transition plan is building a business that can run without the owner, thereby protecting his or her most valuable asset from the unplanned events in life.