As a business owner, you have put years of effort into building a successful manufacturing operation. From purchasing new equipment and adopting new technology to putting the right people in place to grow the business, you’ve likely followed a strategic plan to hit certain milestones. However, as you think about the longevity of your company, you may not have given any thought to a succession plan.
A succession plan doesn’t mean that you are ending your involvement in the company. Rather, think of it as a series of events that occurs over time. Your vast knowledge and experience needs to be documented so that your manufacturing operation can continue to benefit from it. And while no one likes to think about it, unexpected events can take place; you have responsibilities to your customers, your employees, your vendors and your family. As you look toward long-term growth, it’s important to consider the steps you should take.
The following four considerations will help you prepare for the future of your business.
- Take Stock of Your Wealth
Your business and personal lives are interwoven—it’s important to understand exactly how. According to statistics from the Exit Planning Institute, 80 to 90 percent of most business owners’ net worth is tied up in their business. While that is a very large percentage, it doesn’t represent the total picture of personal wealth. You must understand the amount of your personal wealth to measure where you currently are on your journey toward retirement. We recommend that you get a financial snapshot of your personal wealth at least annually.
- Contingency Planning
Just as you implement measures to make sure your operation is on track to meet your goals, it is essential that you plan for any unforeseen event. No one likes to think about the “what ifs,” but doesn’t it make sense to ensure that your business can continue to operate whether you retire or need to exit suddenly? These include:
- Establishing a transition/operations plan for the business that accounts for both (a) your planned retirement at some point, and (b) your sudden exit for unforeseen circumstances
- Ensuring your estate and trust documents are updated and reflective of your current status and wishes
- Reviewing your current insurance to ensure it’s sufficient in case of a personal or business emergency
- Reviewing your investments outside the business to make sure they are aligned with your retirement goals—as well as any immediate cash needs you may have
- Have a Roadmap
Some manufacturers plan for their retirement—they know exactly what they want to do and when they want to do it. Do you have a future vision for the business you have worked so hard to build? A strategic plan includes the most important initiatives that will help ensure that your growth trajectory continues. Who will be responsible for the initiatives? When do they need to take place? Do you have a roadmap in place? Such initiatives can include:
- Geographic expansion
- New product launches
- Streamlining delivery time
- Investing in research and development
- Improving customer satisfaction
- Business Valuation
Do you know what your business is worth? Whatever your plans may be – from continued involvement in the business, physical expansion and introduction of new products and services to exit planning, retirement and more – all future actions are predicated on knowing the value of your business.
At Goldin, Peiser & Peiser, we recommend that businesses be valued annually. This delivers the most accurate and up-to-date picture of a business’s health and value. Valuations will help you make decisions that are based on your most current information. An experienced valuation professional will look closely at into your manufacturing operation to review all relevant financial metrics, past and present—from sales and cost of goods to overhead expenses, taxes, interest and much more.
Be sure you share your vision and whatever key initiatives with your team. Everyone should understand the plan and what their key roles are going forward.
Your vision should include a plan for your own future succession; if you plan to exit business, don’t procrastinate. Done properly, succession planning takes place in a number of steps and accounts for many variables. When you plan for the successful transfer of your business, you will have peace of mind that all the effort you have put into your business will continue to reap rewards.
For more information, please contact Allan Peiser, CPA, at 214-365-2503 or use our contact form below. Learn more about the Manufacturing and Distribution Services Group at Goldin Peiser & Peiser.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.