As a business owner, you know that you cannot oversee and manage your operation forever. At some point, you will have to pass your business over to someone else and hope that your operation continues to thrive.
The U.S. Small Business Administration states that as of 2019, there were 30.7 million small businesses in the U.S. On average, the value of a small business accounts for approximately 70% of the entire net worth of its owner. Yet, many business owners may not know where to begin when considering who will run the business when they decide to step down..
Identify potential candidates
Make a list of potential candidates who you believe could effectively take over and run your business. If you run a family business, include family members who would do a good job as well as other co-owners, workers, or even competitors who could effectively take over.
Determine the qualifications for your successor and your role in the transition
Determine what qualifications you want your successor to possess. For example, you may want this person to have entrepreneurial experience or have specific industry certifications or qualifications necessary to running your operation. You will also want to consider what role, if any, you will continue to play in the business during the transition and after the new owner takes over.
Establish the value of the company and the terms of the transfer
Once a successor is identified, you must agree on a valuation method to determine what your business is worth. This requires you to ensure that your business maintains adequate and reliable records for establishing its true value.
Next, create the obligation for the transfer, usually through a contract such as a buy-sell agreement. The contracts utilized will include the rights and obligations of the owner and successor, and it will likely also include terms for how the transfer will be funded.