Planning for the Future of Your Small Business: What You Need to Know About Ownership Transfers

If you're just starting your small business or have only owned it for a few years, you may not have thought about exit plans yet. However, preparing for the ownership transition is an important step in the life of every entrepreneur.

A transition plan is important not only for securing your financial future but also for maintaining businesses in communities, preserving jobs, diversifying ownership, and creating wealth for current and new business owners. Without a plan, business owners risk losing the legacy they've built, and communities risk losing vital local businesses that provide jobs and economic activity.

Why Transition Plans Are Important

Seventy-five percent of business owners said who want to exit their business within the next decade, yet 58% of owners don't have a formal transition plan, according to Project Equity. In New York City, this transition is already underway, as 50%. companies are owned by people over 55 years of age.

Transition options

Understanding the options available during property transition is essential for developing a proper plan. Well-thought-out succession options may include the following:

• Continuity between generations: transfer of business to heirs or family members.
• Mergers and acquisitions: sale of a business to another company or entrepreneur.
• Transfer of ownership rights to an employee: transferring ownership to employees, such as through an Employee Stock Ownership Plan (ESOP).

While many small business owners may dream of leaving the company to their children or other family members, only 30% of family businesses transfer ownership from the first generation to the next. Therefore, it's important to consider all possible options. For some companies, transferring ownership to employees can preserve the legacy, improve business performance, and create opportunities for shared wealth creation. For others, selling the business to a private equity firm or a competitor may be the most suitable option.

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Find support to make the transition

Regardless of the timing or structure of your exit plan, your financial institution can provide access to strategic advisors, financing, and buyer and seller connections at every stage of the transition.

The checklist below can help business owners define their long-term goals and guide them through the decision-making stages associated with any ownership transition process.

• Explore your options. Evaluating ownership transition options, including transitioning the company to the next generation, mergers and acquisitions, and employee ownership transfers, is the first step in developing the best plan to achieve your goals and ensure the sustainability of your business into the future.
• Plan for change. Ownership transitions can have a significant impact on a business owner's personal finances, their family, and their financial health. It's crucial to have clear goals for what a successful business succession looks like and for creating a vision for life after the transition, including short-term and long-term expenses.
• Choose your consultants carefully. Assembling a team of trusted advisors can improve the process's efficiency and ensure alignment and focus on long-term success. Advisors can include accountants, business brokers, mergers and acquisitions advisors, valuation experts, lawyers, and bankers.

Conclusions

Planning for the transition of ownership should be part of every business owner's standard business plan, regardless of the stage of your business. As your business grows and scales, it's important to consider options for ensuring the future success of your business and take the necessary steps early to ensure your legacy is secure.

For more tips on ensuring the financial health of your small business, visit the website chase.com/business.

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