3 Ways To Prepare Your Small Business Books For Succession Planning

Succession planning is important for all small businesses. Succession planning is your company's action plan for what would happen if there were an emergency and what will happen when the owner decides to retire. Without this in place, the business may suffer or even fail — losing all of your hard work and investment. 

So, how can you prepare your business for succession planning? Here are three key goals to concentrate on within your accounting.

1. Teach Others

How many people in your small company can do various accounting tasks? If there are any important functions — such as entering accounts-payable or accounts-receivable transactions, reconciling the bank statement, or creating an invoice — that can only be done by one person, who will do it if that person is not there? Can your business continue without them? 

Make a conscious effort to cross-train employees in various key functions. You can either do this by using real, live transactions or by creating practice scenarios to teach others with. Along with cross-training, write down how to perform certain activities so others could handle them in a pinch. 

2. Build Up Succession Budget

Owners and partners who leave their small business to retire usually must be paid upon their exit. This is, after all, probably a big part of your retirement plan.

But can the business afford to pay you a retirement amount or to buy out a partner while still paying for everyday operations? Keep in mind that the business will also likely need to pay the costs of replacement workers to do your job — either through outsourcing or through salary. Financial planning for an owner's exit should begin years before they want to leave. 

3. Clean Up Accounting

If you've operated the business for many years by yourself, you probably have your own ways of doing things like moving paperwork, entering transactions, handling certain errors, and creating statements. These processes are often set up by the relatively untrained individuals handling accounting. While this is fine for a while, begin thinking about how things will look to outsiders.

This is a good time to consult with a professional bookkeeper and accountant, learning how to do your work more professionally and more uniformly according to accounting standards. It will take some adjustment, but it will prepare you to have others involved in your books. 

As you get your accounting ready for any transition — planned or unplanned — you'll have more confidence that the company will be able to weather whatever is thrown at it. Start today by meeting with a professional at a small business accounting firm like Universal Accounting and Financial Services, Inc.