"The Ant and the Grasshopper" and Business Succession Planning

ant and grasshopper.jpeg

One of Aesop's Fables is "The Ant and the Grasshopper," a version of which goes like this:

In a field one summer's day a Grasshopper was hopping about, chirping and singing to its heart's content.  An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest.

"Why not come and chat with me," said the Grasshopper, "instead of toiling and moiling in that way?"

"I am helping to lay up food for the winter," said the Ant, "and recommend you do the same."

"Why bother about winter? said the Grasshopper, "we have got plenty of food at present."  But the Ant went on its way and continued its toil.  When the winter came the Grasshopper had no food, and found itself dying of hunger while it saw the ants distributing every day corn and grain from the stores they had collected in the summer.

Then the Grasshopper knew: it is best to prepare for the days of necessity.

If you're a business owner, you probably aren't sitting around "chirping and singing" to your heart's content. You're probably "toiling and moiling" every day to run and grow your business. However, like the Ant, it's important to keep an eye on the future and continually plan for the "winter" of retirement.

Business succession planning concerns not only the ongoing viability of the business, but also the business owner's retirement plans.  A 2015 survey by CNBC and the Financial Planning Association found that while 78 percent of small business owners intend to sell their businesses to fund their retirements, fewer than 30 percent have a written succession plan.

There is no one-size-fits-all succession plan and in the coming weeks I'll be discussing and explaining a few different options. Ultimately, each succession plan should be structured around what the business owners goals are. However, regardless of what the plan entails, there are a few semi-universal truths that apply across the board.

You shouldn't wait for the "right time" to create a plan

When it comes to planning for the future, time can be your ally or your enemy.  The sooner you get started, the better of you'll be.  If you wait until you're approaching retirement age, you may find that it's too late to create a viable and successful plan.

Thinking that you'll just sell the company when you're ready to retire is probably a mistake

Selling a closely-held business is not like selling a house - it's not as simple as putting out a "For Sale" sign.  Private companies can be difficult to sell and often include detailed negotiations regarding valuation and ongoing operations - particularly if the buyer is unfamiliar with the business.  A succession plan can decrease the unknowns related to ownership transition and increase the likelihood that the business owner will receive they value they want.

Consider the consequences of simply dividing your business equally among your heirs

It's not unusual for a business owner to simply divide a business equally between all of his/her heirs.  However, the business owner should consider the respective goals of his/her heirs, as well as the heirs' current and future involvement in the business.  A good succession plan, coupled with a solid estate plan, can help ensure that the business owner's heirs know what to expect, and what is expected of them, while still maintaining fairness.

Succession Planning isn't an "all or nothing" proposition

There are many succession plans that transfer business ownership to an eventual successor without losing control and/or income.  There are also many succession plans that include a gradual transition that will be beneficial for the healthy operations of the company, as well as create potential current tax benefits for the business owner.

Although the future is impossible to perfectly predict, creating and implementing a business succession plan will result in the financial benefits, tax advantages, and a healthier post-transition company, regardless of what the future brings.