At some point it will be time. You’ll want to pass along the business you’ve built to a daughter or son. Or you’ll want to sell it and retire to that tropical paradise you’ve always dreamed of. That might seem far off, but will you be ready when the time comes? Surprisingly, 78 percent of owners plan to fund their retirement by selling the business but only 30 percent have a plan. That’s why it’s important to start succession planning now. It’s a formal plan to exit your business by developing the talent and financial resources necessary for a successful transition. Here are some insights into the process.

Caught Without a Plan

The first step in succession planning is realizing you need it. You didn’t build your business in a day and you can’t transition out of it in one either. Some experts recommend you begin planning as much as 15 years in advance.

Succession planning helps you address issues you may not have even considered. For example, who has the talent needed to retain the value of a business so you get a fair price? How do you make an equitable transfer if one child wants to take over the helm but the other wants to do his/her own thing? Will the funds be available to provide you with an income stream so you can afford to retire?

Start with a Team

If this process seems daunting, it doesn’t have to be. There are a number of professionals who can help. Your plan needs to take several aspects into account—legal, financial, talent management. So it often makes sense to take a team approach. The team might include your accountant (CPA), tax advisor, attorney, financial advisor, and management specialist. Some financial planners can serve as a coordinator of the team.

You want a team that will work together to proactively put a plan in place. An important part of that is to involve any family members who may be impacted. That communication will ensure a smooth transition. Remember that the plan starts well before the day you leave the business.

More Than One Exit

There are several ways to transfer your business. One is an outright sale. This gives you immediate access to cash, but you need a qualified buyer to complete the sale. Another option is a gradual sale. In this case, the sale happens over a period of time. That’s helpful when the buyer can’t afford an outright sale but could finance a long-term payment plan.

A third choice is to lease the business where you sign over temporary ownership with certain conditions. Still another option is a buy-sell agreement, which provides for a prearranged sale when a certain event occurs like retirement, death, or disability.

In any of these options, it’s important to consider how the transfer will be funded. That can happen with a number of vehicles including life insurance, annuities, trusts, or promissory notes.

Each of these has unique legal, tax, and financial implications. You will want to consult with your team to determine what’s right for your small business.

Empower Your Successor

Whether it’s a family member or an employee, look for ways or opportunities to develop the skills they’ll need to take over the business. One might be to involve them in decision-making. You can help them weigh the pros and cons of important decisions. It’s in your best interest for them to learn from mistakes while you’re still around to provide support.

Consider whether it’s necessary for the future owner to get some outside training. It might make sense for you to fund that additional education now. You get the immediate benefit of a more skilled staff member while you’re building a future leader who can maintain your business’ value.

For More Information

These insights can help you start to decide what’s right for your succession plan. For more insights, consult the Small Business Administration’s “Plan Your Exit” website. It includes links that would be helpful to family-owned businesses.