Indecision or putting off succession planning is a high risk decision. A major risk of delayed your exit planning is the potential loss of talented people. Without the clarity of a long-range vision or expressed potential in future opportunities, the good people may think they have no reason to stick around. Or they may be lured away by a job that appears better, without knowing the opportunities of their current position to someday move up or own the company.
What’s more, it takes years to develop people for higher responsibilities, and not every employee is going to work out. Business owners need multiple candidates over multiple years in order to see who is best suited as successor. This can be further complicated if family members are involved.
Another risk of putting off succession planning is that financing the sale of a business takes more time that you might think. Instead of one year to prepare a business for sale, two or three years could be required. Few transactions will be funded with cash and conventional loans, so more will require financing by the seller.
Businesses that go up for sale today may have terms such as 10-year amortization and mid-term balloon. The result is a longer payout time for the sale.
The seller-financing issue leads to a third risk: a longer time to feel financially secure enough to retire. This is a delay that affects lifestyle choices and can be affected by health and other aging problems. A formal succession/ exit plan will provide the guidance to successfully transition your business.
