Businesses shouldn't overlook plans for the end at the beginning
New Jersey business owners have a lot of things to consider before they begin their operations. Because of the variety of issues that pop up, many new businesses focus on start-up and operational issues rather than longer term concerns. For example, some new business owners are fixated on details such as getting the business's organizational documents correct.
However, start-ups should not forget to plan for future events. For example, how will the business end? Known as "succession planning," almost every business owner will eventually transfer ownership to a family member, sell to a third party or close the business.
A business's value comes down to a combination of tangible and intangible assets. Tangible assets include things a person can see and touch such as real estate, equipment and inventory. Intangible assets, such as the business's future cash flow potential, reputation, market share and longevity, are trickier to quantify.
If an owner decides to sell a business interest to a third party, the buyer will want to scour the business' financial records. Business owners should plan for that by keeping good records such as reporting all of the business's income and expenses.
Other owners may choose to leave the business to someone within the company by either selling to a candidate within the existing management or through an employee stock ownership plan. This approach may make sense for owners who want the company to retain its core values.
In some cases, the best approach may be no succession plan at all. For example, if the business owner plans to close the business's doors rather than selling it, then it makes sense for the owner to periodically take out all of the value they can get while the business is operational.
Source: Times Herald-Record, " SBDC Business Forum: Focus on succession planning," Sam Kandel, June 11, 2012