One of the best parts of starting the magazine, foundingAUSTIN, is that I’ve been able to spend a lot of time picking the brains of successful entrepreneurs all around Austin. Doing so gives me tremendous insight into the many different ways these industry leaders do business. Sometimes, one comment an entrepreneur makes stays with me for a while, and that’s what happened when one of the entrepreneurs I recently interviewed told me that he consistently built his business for an exit because he felt that a business that wasn’t worth selling wasn’t worth doing.
To me, this mindset extends into succession planning as well—because if your business is worth devoting your time, money and expertise to, then it’s worth planning for your business’s continuation after you retire. Yet, global consulting firm McKinsey & Company found that roughly 66 percent of public and private companies in the U.S. have no plan developed for business succession. Some experts, including executive educator and coach Dr. Marshall Goldsmith, believe this may be in part because founders and other entrepreneurial leaders are driven people with an intricately personal connection to their business that end up apprehensive about the very idea of business succession.
Unless a founder has discovered the fountain of youth or other means to endlessly extend their lifespan, succession planning is a critical component of creating a business that lasts and serves as a legacy. Getting started with succession planning doesn’t have to be hard. A founder first needs to identify viable candidates to take over their role as CEO. That could include one or more children or family members, a partner, spouse or even a dedicated employee.
The next step is to consider the potential tax benefits of succession planning. Understanding how the IRS will value your business and the ways you can reduce that estate tax burden on your heirs are great places to start.
There’s no question that, when you really dig into it, succession planning is complex. You have to ready your succeeding CEO for their new role, create a timeline for easing your own duties, prepare shareholders, customers and employees for the eventual transition and so on. But it’s the only way to keep your business—your baby—alive and well after you’ve passed on.