Business Monday

3 tips to help veteran small business owners with succession planning

According to the Small Business Administration, there are 3.7 million veteran-owned small businesses, representing over 9 percent of U.S. businesses.

Veteran business owners and entrepreneurs make important contributions to business creation and growth in the American economy. Their service often provides them with important skills and leadership abilities that are directly relevant to business ownership. While three-quarters of veteran business owners today run businesses that are in the startup, growing, and sustaining phases, many are in the winding down phase.

In a recent Wells Fargo/Gallup national study, veteran business owners were more likely than the general population of business owners to say they were in the winding down phase of their business (24 percent and 15 percent, respectively). This may be due to the fact that veteran business owners tend to be older than those in the general population, and as a result, many may be considering retirement or other life changes.

Winding down a business is a crucial stage of the business life cycle. As you think about the future of your business — whether you want to sell, transfer ownership, cash out or wind down entirely and seek retirement, it’s helpful to start a business exit planning process. There is no “one plan fits all” solution when it comes to developing a succession plan for your business, but here are a few tips to consider:

Start planning

Whether you pass the business on to a family member, sell to an external buyer, or choose another exit strategy, thoughtful planning is essential to making your transition successful — not only for you and your successor, but also for the long-term health of your company.

You can establish this plan at any time. However, it’s a good idea to create a transition plan at the same time as developing or updating your business plan. If you want to exit by selling the business, for example, you might include a timeline for courting potential buyers. If you want to pass the company along to an internal candidate, on the other hand, you might include a strategy for choosing and training your successor. Framing a successful transition and developing a schedule will be important so you know which steps need to be carried out, who is in charge of each step and when you want those steps completed.

Identify transition options

If you’re looking to sell the business, first decide what kind of buyer you’ll sell it to. This could be an inside successor — such as a shareholder, partner or manager. It could also be an outside owner of a related business, or even a major customer or vendor. Once you’ve identified your target buyer, prepare your financials, resolve any legal issues, and take steps to make your business as attractive as possible. Solid finances and a plan to keep management running smoothly after you’re gone can all help maximize the value of your business. If you decide to close your business or retire, it’s a good idea to talk with your banker to discuss which type of plan may be best for you and your business. If you’re a sole proprietor, you may simply decide to close up shop. But if your business is set up as a partnership, you and your co-owners must make the decision collectively.

Prepare a business evaluation

A full business evaluation will help you maximize proceeds from a sale, or help ensure sustainability and growth after you leave. Prepare for a professional business evaluation by gathering three to five years of accurate and up-to-date financial records, a current profit-and-loss statement, a list of your business assets, legal documents — such as partnership agreements or articles of incorporation — and any other documents, including copies of major contracts that may help a professional evaluate the worth of your business. The methods used to value each company are unique and are driven by the type of industry you are in.

Creating an exit strategy isn’t top of mind for most small business owners. However, it’s important to think about your long-term goals and whether or not you have the right process and structure in place before exiting or transferring ownership of your business.

Jorge Villacampa is Miami-Dade area president, Wells Fargo.