The importance of having a succession and financial plan

Between focusing on growing your business to making decisions that benefit your customers, you may be hard pressed to find time to think about retirement. However, two of the most important plans a business owner should have include both a succession and a financial plan.

“You always want to have a plan in place in case of emergencies or if you simply decide to hand the business off to someone else,” says Scott Gnau, Commercial Lending Leader at First Federal Lakewood. “How will your business continue operationally and functionally once you exit? You want to make sure you and key employees are aware of your plan to make a transition that is as smooth as possible.”

Smart Business spoke with Gnau about what a succession and financial plan looks like and who should be involved.

What is a financial plan and who should be involved?

Financial plans are a snapchat of a person’s financial history at a specific point of time and shows their net worth. The financial history may include information regarding bank accounts, investments, real estate, mortgages and business assets. This plan gives business owners an idea of how much they’ll need to live the lifestyle they want after retirement.

When it comes to financial plans and planning for the future, business owners should consider their age and stage of life. This means that someone who is 65 and ready to retire might want to get a formal business valuation in preparation for a sale or transfer of ownership. Younger owners who aren’t yet ready to exit would be better served by an informal valuation. It can be less expensive and time consuming, but provides a reliable sense of the business’s value, which can be used to form the rest of the financial plan.

When it comes to your financial plan, it’s important to keep your partner, child and/or any business partners in the loop, since discussions around this plan are usually geared toward how your financial goals will be reached together.

What is a succession plan and how do I start one?

A succession plan provides information that details what happens to a business once an owner exits the company. These plans offer details as to who will take over the business and who will step into leadership positions if they become available. Succession plans are created to make the exit and the transition period that follows as smooth and worry-free as possible for those who remain with the company to run the business. A successful succession plan will keep your business, brand, employees and jobs in place once you exit your company.

Start with a defined plan of action that outlines where your business is headed. It should identify the key people who will take over and in which positions, and also outline the key advisers who provide guidance to the company. Additionally, proper documentation is needed to support your succession plan. With that comes key person life insurance, which helps against financial loss if the business owner passes away.

A team of advisers is an important part of having a succession plan. Your team can consist of CPAs, attorneys, financial advisers, bankers, insurance agents and a board of directors. The more communication and open conversations that you have with your advisers and your team, the easier the transition out of your business will be.

The right banking partner is a great addition to your inner circle — for both your succession plan and your financial plan. This person would understand your team and the operations of your business. For example, they’ll be able to help you identify any possible shortfalls in your succession plan, especially if you have a conversation surrounding any changes in your business. An ideal banking partner will understand your unique circumstance and offer solutions to support you. They’ll be in it for the long run and will help you and your business succeed now and in the future. ●

INSIGHTS Banking & Finance is brought to you by First Federal Lakewood.

Scott Gnau

Commercial Lending Leader


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