Knowing why and when to start succession planning (read here) allows us to move on and address the personal and professional practical considerations of succession planning. The first personal consideration can be assessed by thinking about the following questions:
What do YOU want from your succession plan? Do you want your business to continue after you retire, to stop when you have sufficient income to retire, both – which would be similar to semi-retirement, or something else? The 4 basic personal goals surrounding succession planning are: (1) creating a legacy; (2) obtaining sufficient income to retire completely; (3) both – creating a legacy and semi-retirement; or (4) something else, perhaps creating a new career entirely.
Once you’ve answered these questions, next you should consider another personal matter and how it aligns with the answer above. This helps define realistic objectives. This personal consideration involves your dependents:
Who depends on you now? Who is likely to depend on you in the future? And what might that dependency look like?
Being an emotional and psychological support weighs heavier than we often know. So, if this type of support isn’t managed well, it will drain our energy, time, and motivation. How we sustain this loving nature without harming ourselves will be discussed in another week or so, but let’s move on to look at other dependencies.
Sometimes supporting someone financially is easier than providing emotional support; sometimes it is not. Perhaps you have or someone you know has family members who phone when the electric bill is too high, when the basement has flooded, or when the church needs a new roof? Perhaps you have a relative whose spouse or partner passed away leaving a minor child to be taken care of by a single parent?
Often connected to emotional and financial dependency is physical dependency, typically accompanying caring for a disabled loved one.
Your succession plan must account for of these factors and possibilities or your objectives may fall short and you or loved ones may suffer.
Once completing this difficult work, we can address the less difficult matters – professional considerations.
Last week’s digression, covers the first professional consideration, which is deciding your business’s legal entity, i.e., a LLC or S-Corp. In very limited situations, would one actually consider a sole proprietorship, partnership, or C-Corporation, so those entity choices weren’t discussed.
Having decided on a legal entity, the next professional consideration is your market. Who is your market and how can you differentiate your business from your competitors? First just think about the people who may want or need your services or product, e.g., women with bird cages that need regular cleaning. But what if you’re already in business?
One idea, for those who provide personal services, is to take the average age of your oldest and youngest client; next consider the source of your highest quality referrals who fit within that average; and then of those clients, what work did you find most enjoyable: talking to the birds, letting them fly around the house, or making their cages shiny? After creating this “niche,” the issue of differentiation remains, which requires performing a lot of research – the competition, customer demand, external variables, and more. After compiling your research, you should be able to determine how you can differentiate your business from your competitors.
And yes, we’re still talking about succession planning because to create a winning succession plan, you have to create a winning business.
And why is succession planning important to estate planning? If you’re a smallbiz owner, what are you going to do with the business you once owned? A good estate plan will help answer that question.