Succession planning: Women face exit challenges
By Gisel Hillner, KeyBank
They’re entrepreneurial, efficient, multitasking mavens
who are shattering the glass ceiling by calling the shots in
the workplace. They’re women who own their own
businesses. Over the past 20 years, the growth of women-owned
businesses has outpaced growth among businesses in general.
Women-owned businesses are a boon for the economy, providing
19.1 million jobs and generating nearly $2.5 trillion in sales.
Fastest growth is in construction, agribusiness, transportation
and telecommunications. With this expansion of businesses, a
growing number of women business owners are being confronted
with the challenges associated with exiting the businesses they
have built — in short, making sure that their
“baby” is in good hands.
According to recent data from the Center for Women’s
Business Research, a quarter of all women business owners do
not have a succession plan in place, leaving their businesses
vulnerable to potential acquisitions, disputes of ownership or
business failure. The primary strategy of the remaining
three-quarters of women business owners is to sell all or part
of the business, according to the center. Just as women need to
establish an effective business plan before they launch a
business, they also need to implement a succession plan so the
business runs smoothly after they’re gone.
PREPARING THE PLAN: Before designing a business succession
plan, business owners should consider several factors,
including: nature of the business, number of owners/
shareholders, age and health of owners, financial condition of
owners, value of entity, prospects for purchase, state law.
When preparing a business succession plan, owners should think
about what their personal goals would be if they weren’t
involved in the day-to-day operations of a business, and what,
if any, role they see themselves playing in the business.
Another important consideration for owners is the
establishment of a living will, which states their wishes for
end-of-life care should they become unable to make those
decisions themselves. Owners should also have a potential
successor in mind to operate the business should they become
unable to do so. Above all, a succession plan should be
documented, or written, ideally in tandem with an owner’s
successor. A partner could agree to offer a right of first
refusal when the owner exits, but if nothing is formalized and
the owner’s family is making a decision in her place, the
family may choose the highest bidder.
In addition, plans should include a company’s growth and
expansion goals, as well as plans to introduce any new
products.
WHEN TO START PLANNING: Business owners should start planning
as early as possible. While they should certainly strive to
make a long-term plan when they are still healthy and vital
enough to actively participate in all business decisions, it is
vital to plan for the unexpected.
What would they do if they (or their partner) suddenly became
disabled or died? If their partner became unable to participate
in the business, would they want their husband or child to fill
that role? How would their family survive if they suddenly
passed away and that family needed liquid assets to pay taxes
and final expenses, not to mention ongoing cash flow?
Owners should also establish a reasonable timeline for
transferring the business. According to the Small Business
Administration, some succession consultants recommend a three-
to five-year plan, while still others counsel owners to create
a 10- 15-year plan. By allowing sufficient time for planning,
business owners can evaluate potential successors in various
roles, and determine whether these individuals have the
commitment, maturity, and drive necessary to succeed.
Owners should consider the following when preparing the
plan:
-
Can the business be transferred?
-
To whom should it be transferred?
-
When should it be transferred?
-
How should it be transferred?
Also keep in mind that various transfer options exist. The
broad categories include: gift of business interest, sale to
third party, sale to employee and sale to co-owner.
Business owners who establish a comprehensive succession plan
and know their options will enjoy stronger financial security
along with the priceless peace of mind that comes from taking
care of business.
— Gisel Hillner,
KeyBank
relationship manager,
Portland
g
isel_e_hillner@keybank.com
