Avoid Common Business Succession Failures
Why do many small businesses fail after a transition to new leadership? Because the business owner did not plan the transition! Sadly, these business failures can often be traced to wholly preventable causes. So how should a savvy advisor with business owner clients or prospects respond to these avoidable causes of business failure? Use this article as a springboard to raise client and prospect awareness by:
- Defining business succession planning,
- Identifying six common factors in a post-succession business failure,
- Understanding the root cause of these factors,
- Highlighting the critical elements of an effective business succession plan, and
- Optimizing the advisor’s confidence and competence.
What is Business Succession Planning?
Succession Planning is the process of planning to transition a business to new leadership or new ownership. That transition may be one of the most important financial decisions your client will ever make. The business’s continued success is vital if, for example, your client depends on income from an installment note or expects an income stream from stock dividends.
Six Common but Preventable Failures
Almost 60% of small business owners have no succession plan, even though few would argue the importance of succession planning. That alarming estimate may help explain why eight of every ten post-transition small businesses that fail can trace the failure to one or more of the following preventable factors:
| 6 Factors in New Leadership Failure |
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Yet, these factors are frequently symptoms of a deeper, root cause.
The Root Cause
The preceding six factors are the effects of the root cause, a failure to effectively plan the transition to well-trained, competent new leadership. Stated another way:
An effective pre-planned business succession strategy helps avoid the post-succession failure of the business.
Each of the six failure factors is highly preventable with an effective Succession Plan. Consequently, that sobering insight begs the following fundamental question:
How is the business owner preparing the next generation of leadership for the business, and who is being considered?
An Effective Business Succession Plan
An effective Succession Plan should include at least the following elements:
- Determining the owner’s objective,
- Selecting and training future leaders,
- Income planning for the owner, and
- Tax and estate planning for the owner.
Optimize Your Competence and Confidence
Business owners, especially small business owners, need help to recognize the need for succession planning and how to make planning a priority. Savvy advisors will recognize this scenario as an opportunity for clients, prospects, and themselves. An advisor’s competence and confidence in raising awareness begin with adequate training and application resources. For more information on optimizing your competence and confidence in these business strategies visit our Business Owner Program.
Disclaimer
The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide investment, income tax, or financial planning advice of any kind. An experienced and credentialed expert should be consulted before making decisions relating to the topics covered herein. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.
