If you are a business owner, you have likely spent most of your working life building your business. Much of your identity may be wrapped up in what you have built. It is tremendously challenging to pass on the business to the next owner without hurting your sense of self, your family, or your business in the process.

The sooner you can begin preparing for this transition, the better. The less time one has to hand off the business to the next owner, the more difficult the task becomes.

 1. Identification – Who will be the next owner?

Just starting this process can be very challenging. Many owners face emotional obstacles including fear of giving up control and a sense of losing one’s self-worth. There are also practical obstacles like loss of primary focus and purpose as well as loss of opportunities to use developed skills and talents. It is helpful to have a trusted advisor or counselor to process these concerns with before heading into the search for the new owner.

Business success is all about leadership. Who is the person who has the character and competence to lead the business through the ever-changing marketplace of the future?

This search might start inside your family. A word of caution: Just because your son or daughter has much of the same DNA as you, that does not mean that your offspring have the same combination of skills, passion, and calling for your business that you have. It is more important to pass on your virtues and instill character in your children rather than passing on a particular line of profession or business.

The next place to look might be inside the company. Are there employees who have what it takes and can be developed to lead the business? There are many upsides to promoting from within as there is familiarity and understanding of the business. A person from the outside would take years in the business to gain the experience and knowledge that a trusted, experienced employee has already.

If there are no suitable prospects in either of these areas, then the time has come to broaden your search to outside leadership.

2. Preparation – How do I prepare the next owner?

The more time you can spend with the future owner the better. It can be helpful to view the relationship as a master/apprentice-type relationship. While it is important to pass on information, most owners have built a culture they want to pass on and that is best transferred over an extended period of time.

It is important for the future owner to have the competence needed, but their character is as important, if not more so. Character takes time to develop. This is why it is important to start thinking about the succession plan early. The more time you can spend with the future owner, the higher the chances of passing on stewardship of your business to a leader of competence and character.

3. Taxation – How do I transfer the business in a tax-efficient manner?

Selling your business can be expensive. There are two paths of succession: a sale or a gift. If you sell your business, the challenge is to minimize capital gains and income taxes. If you give the business away, the challenge is to minimize gift taxes.

Capital gains and gift taxes are both optional and the income taxes can be significantly reduced. However, the tax planning can be quite complex and it is a must to engage an expert in this field to walk with you through the process. A lack of strategic business succession planning in many cases leads to unnecessary taxes being paid and, in some cases, may even result in the loss of the family business.

There are no quick fixes or simple answers to the transfer dilemma. You must spend time planning creatively for an optimal solution.

Why not invest in your business’ future with the same intensity and creativity that you used all those years to build it?