Your Business & Succession Planning: Why Should You Care?

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We all have the dream of living our best lives. Many of us espouse ideals such as work-life balance, financial freedom and meritocracy yet only a few of us actively pursue this reality. Even so, many of those who think they are, are not really.

Too often I have heard the terms self-employed, business owner and entrepreneur being used interchangeably and this is probably one of my greatest peeves, but this is not what this blog post is about (not entirely anyway).

Leaving a legacy should be at the forefront of everything you do if you have left or plan to leave your job to start a business. Forgoing all the perks that come with employment only to be subjected to pretty much the same limitations but with the sole privilege of being able to say that you are your own boss is not a risk I would be willing to take. I would need more than that. Go big or go home is my approach to life.

Let Us Have a Look at Your Business

In consulting with small businesses, I have found that a five-scenario test can be used to evaluate whether or not your business has a solid succession plan.

1. Can You Retire From Your Business?

If, like many businesses, you as the owner have to show up for the business to run efficiently, you probably don’t own a business so much as a job. As a true business owner you should be able to go away for three months and upon your return find the business doing better than it was before you left.

If your answer to this question is “yes”, you can start to add 20% to your total score. If your answer is “kind of”, add 10%.

2. What Would Happen if You Were to Become Disabled?

Like with insurance, my use of the word ‘disabled’ refers to a situation in which you are not able to work and not so much one where you get to work but need special circumstances to be able to perform your function. So ask yourself, if you were to become disabled by this definition, would your business be able to not just continue, but grow without you?

If your answer to this question is “yes”, add 20% to your total score. And again, if your answer is “kind of”, add 10%.

3. What Would Happen if You Were to Die?

In the event of your death, would your employees get to keep their jobs? Would your family or loved ones still be able to derive an income from your business?

By now you should be able to answer this question very quickly.

If your answer to this question is “yes”, add 20% to your total score. If your answer is “kind of”, add 10%.

4. Do You Have a Business That You Can Sell?

Do you have a business that you control or one that you run? Do you form such an integral part of your business that you cannot sell your business without selling yourself as a part of the business?

If your answer to this question is “yes”, add 20% to your total score. If your answer is “kind of”, add 10%.

5. What Would Happen if Your Business Were To Fold?

How many people do you know who lost their businesses and their whole lives came crashing down as a result? This is a clear sign that the business owner’s personal and business life were far too intertwined. A business that looks like this is also a major deterrent for a seasoned investor who may be looking to buy into the business. A business that is on route to having a solid succession plan has a clear distinction between the personal needs and balance sheet of that business owner and that of the business. Would your lifestyle have to change if your business were to fail tomorrow?

If your answer to this question is “no”, add 20% to your total score. If your answer is “kind of”, add 10%.

How Did You Fare?

What’s your score? Are you impressed with your business? Did you score lower or higher than you expected to? Let me know in the comment section.

Read my next blog post: How to Create a Business Succession Plan to see what you can do next