If you’re in the beginning stages of launching your small business or a just few years into ownership, you might not be thinking about exit plans. Preparing for an ownership transition, however, is a critical part of every entrepreneur’s journey.
Not only is a transition plan important for your financial future, a successful transition plan also keeps businesses in communities, preserves jobs, diversifies ownership and creates wealth-building opportunities for current and new owners. Without a plan, owners risk losing the legacy they’ve built, and communities can lose vital local businesses that support jobs and economic activity
Why transition plans are important
Seventy-five percent of owners said they’d like to exit their business within the next decade, with 58% of owners lacking a formal transition plan according to Project Equity. In Utah that transition is already well underway as 41% of businesses are owned by individuals 55+ and older.
Options for transition
Understanding the options available in any ownership transition is essential to creating the right plan. Smart succession options can include:
While many small business owners might dream of leaving their companies to their children or other family members, only 30% of family businesses survive the transition from first-to-second generation ownership. This is why it’s important to consider all options. For some, an employee ownership transition can establish a legacy, improve firm outcomes, and create shared wealth-building opportunities. For others, selling to a private equity company or a competitor could make the most sense for your situation.
Find support for your transition
No matter the timing or structure of your exit plan, your financial institution can provide access to strategic advisors, financing and connections to buyers and sellers at every stage of your journey.
The below checklist can help business owners identify their long-term goals and guide them through the decisions involved in any owner transition process.
The bottom line
Planning for an ownership transition should be a standard part of every owner’s business plan, no matter the stage of your entrepreneurship journey. As you continue to grow and scale your business, it’s important to understand the options available for the future success of your business—and to take action early to secure your legacy.
For more small business financial health tips, visit chase.com/business.
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