Preparing for retirement first step: business succession planning.

• Author: Bannon, Mel B.
• Position: FINANCIAL SERVICES

If you're like many business owners, you've spent a good portion of your working life building a successful company, but it's unlikely that you've spent much time planning for the continuation of your business in the event of your absence. Failing to plan ahead for succession, however, can result in the abrupt demise of a once-thriving enterprise should you die or become disabled or gravely ill. Fortunately, there are some easy steps you can take now to help ensure that succession occurs seamlessly--enabling your business to continue to provide income and purpose for your family and your employees.

One of the most common reasons entrepreneurs fail to plan for their succession is the belief that no one can run the business as well as they can. With a family business there is the fear that the children will take over and run it into the ground and the parent will have to come back out of retirement to run things. While the fear of letting go is understandable, if the business is to survive, someone has to manage it.

A logical place to begin looking, despite the frequent fears, is within your own family. Also look around at some of your key managers, since trusted lieutenants often make some of the best successors.

It does not have to be one person who can take over for you. Often it is a team of people--each with a separate skill--who, working together, can run things as well as the owner--and often better.

Identifying and grooming successor management is perhaps the most critical task you face if you hope to ensure the long-term survival of your business. The right successor must be both able and willing to take over. Owning a business is a major responsibility that not everyone wishes to have. Don't assume that just because you have capable managers on hand that they will necessarily want the job--or that a son or daughter who wants the job is necessarily capable.

Spend time discussing your ideas and intentions with candidates to gauge their talents and commitment for taking on the responsibilities of ownership.

The hard part of succession planning is deciding who will run the business after you're gone.

Once you've made this tough decision, you can move on to the mechanics of ensuring a smooth and orderly transition. In order to effect a change in ownership, you may need to have a buy-sell agreement in place that details the terms of the transaction. This will include a valuation for the business--a rather subjective process. Common...