Continuing our review of the six common mistakes that can destroy businesses, we now turn to the fourth mistake: procrastination about retirement and succession planning.
Answer the following questions to see if your company is vulnerable:
• Does the owner know when he or she wants to retire?
• Does the owner know how much income is needed in retirement?
• Does the owner want to be running the company full-time five years from now?
• Does the owner know how much control he or she must maintain over the business to ensure retirement income?
• Has the owner explored financing opportunities for key employees to buy the company in the future?
The more “no” answers, the greater the risk. How does your company look?
Retirement means different things to different people, but one thing is certain – you’ll need enough money to live on. That means figuring out a budget and knowing how you’ll pay for it.
If you don’t want to work forever, then you need a plan to fund your requirement. And if that means selling the business, do you have a ready, willing, and (financially) able existing employee or family member to take over? If so, you will want to make sure that there is a business left for him or her to run when you step down. If there isn’t, you’ll be looking at a strategic or financial buyer outside the company. Either way there will likely be a transition period where the current owner relinquishes the reins and phases out of the business.
As we noted last month, the absence of a clear succession plan creates ambiguity at best, and a vicious power struggle or inability to continue operating the company at worst. Take the time now to plan your retirement objectives and ensure the success of the business in the hands of the next generation.