For a family business, succession planning is vital for smooth operation and continued growth. But while most family owners give much thought to who they want to take over and how to transition this, they may not give as much attention to preparing the business finances. What should you do to get the books in the right shape for succession? Here are a few steps to take.
1. Review Documents With an Accountant
If you do not already have an experienced accountant on your team, this is the time to engage with one. Your accountant should look over documents through the company's operations to ensure that they will facilitate the change in ownership. This includes the type of business entity, how shares are distributed or held, what contracts are in place, and financial statements' veracity.
2. Standardize Accounting Practices
That accountant may help you oversee the normalization or standardization of your accounting books and entry. While you and your family members may have been doing things a particular way for many years, all accounting work should be made to conform with standard accounting practices. This way, records are the most accurate and third parties will be able to do the work.
For instance, the change from entering vendor invoices when paid to entering them when received helps forecasting, ensures accurate financial statements, and smooths employee workload. It makes your business more uniform with others — and therefore easier for anyone to work with.
3. Value the Business Professionally
To decide how to handle the transition and change in ownership, you'll need to have an accurate valuation of the company. Not only does this help you see how much you may be able to retire with but also to identify financial weak points that can be fixed before the handover.
4. Cross-Train Staff
Most family businesses have many tasks that are only done by one person — often the owner or family members. To hand off your business to others, though, calls for delegating work to others as soon as possible and as often as possible. The more your business can get along without you, the better. Your goal should be to have few, if any, accounting tasks that can only be done by one specific person.
The process of preparing for a succession can take years to complete. The best time to start — whether you plan to leave soon or not — is now. Learn more about standardizing your books, ensuring the right documentation, and crafting the best business value by meeting with a business accountant in your area today.