Securing Your Legacy: Why Every Shop Owner Needs a Succession Plan
Whether you’re planning for retirement or thinking about buying the shop you’re managing, succession planning can help you build a clear roadmap to achieve your goals.?
Unfortunately, many shop owners delay this critical step, which can limit their options and reduce the long-term value of their businesses.
Planning in advance can make all the difference in preserving the value of your business and securing the financial future you envision for yourself and your family.
Why Start Planning Early
Many shop owners wait too long to begin succession planning, often starting the process when they’re nearing retirement and feeling burned out. This leaves limited time to address gaps in valuation or prepare the business for a smooth transition.
It is recommended to start the process at least five years before you plan to exit. Developing a detailed succession plan usually takes 30 to 90 days, while implementing it can span six months to two years, depending on the responsiveness of the owner and the complexity of the business.
Without a proactive approach, shop owners may find that their business hasn’t accumulated enough value to support their desired lifestyle in retirement.
The Benefits of a Diminished Valuation
When transitioning a business to family members or key employees, many owners use a “diminished valuation” strategy. This approach enables the next generation to build equity more quickly while reducing the financial burden of taking over the business.
For example, a diminished valuation allows the buyer—often a child or trusted employee—to acquire shares incrementally. This equity growth positions them to secure financing, such as SBA loans, for the remaining purchase amount when the current owner decides to fully exit.
This strategy not only helps maintain the business within the family or team but also ensures that the transition is financially feasible for the buyer.
Building a Team for Success
Successful succession planning requires a collaborative effort. Enlisting a team of professionals—including a CPA, an attorney, and a financial planner—ensures that the plan addresses all financial, legal, and operational aspects.
Owners often benefit from working with advisors who act as coaches, guiding them through the process step-by-step. A financial advisor, for instance, can handle asset management while coordinating with legal and tax professionals to address complex issues such as minimizing tax liability during an internal or third-party sale.
One critical mistake shop owners often make is overlooking the tax implications of an internal sale. As the saying goes, "It’s not about what you get for the business; it’s about what you keep." Proper deal structuring can significantly reduce tax liabilities and preserve the proceeds from the sale.
Contingency Planning is Key
No matter what an owner’s initial exit strategy might be, it’s essential to have a contingency plan. This flexibility allows business owners to adapt as circumstances or priorities change during the planning process.
For instance, many shop owners start by planning to sell to a third party, only to realize that they value maintaining their legacy in the community or taking care of their employees. In these cases, transitioning to an incidental or absentee ownership model can be an ideal solution.
By gradually stepping back and creating systems that allow the business to operate without their day-to-day involvement, owners can free themselves to pursue other interests while retaining a profitable “cash cow.” This approach also enhances the value of the business, as shops that are less reliant on their owners are more attractive to potential buyers.
The Time to Act is Now
Succession planning isn’t just about preparing for retirement—it’s about maximizing the value of your business and ensuring its long-term success, whether you intend to sell or pass it on to the next generation.
Starting early gives you the time and flexibility to explore all your options, build a strong team, and create a plan that aligns with your goals. For shop owners looking to secure their financial future and leave a lasting legacy, succession planning is not just an option; it’s a necessity.
Take the first step today by assessing your business’s current value, identifying your ideal outcome, and building a team of trusted advisors to guide you through the process.
If you want to learn more about this topic, check out this article on Fender Bender:?
Disclaimer
All information is obtained from sources deemed reliable, but not guaranteed. No tax or legal advice is given nor intended. Content provided herein or on our website should not be construed as an offer for investment advice or for securities, insurance, or other investment products. Investments involve the risk of loss and are not guaranteed. Consult a qualified legal, tax, accounting, or financial professional before implementing any investments or strategy discussed here.
High Lift Financial is a DBA for DiFrancesco Financial Concierge, LLC. Investment advisory services are provided through Cornerstone Planning Group, LLC, an independent advisory firm registered with the Securities and Exchange Commission.