There's a huge generation of business owners out there ready to retire. So what's the best way to pick a proper successor?

Have you heard the rumbling in the distance? It's the herd of entrepreneurs busy scoping out their succession plans. But only the best will get what they want. Why is that?

While business owners are accustomed to dealing in competitive environments, only those with a solid plan will survive the biggest challenge of the new competitive landscape: finding someone to pay you the highest possible price for your business with terms that you can live with.

There will be more sellers than buyers. Demographics show this, and there are many books such as Boom, Bust & Echo and The Pig and the Python, that discuss the issues about the impact the Baby Boom generation has had and will have on North American economies. The people coming down the pipe are a smaller generation than people coming out. There will be fewer people to take over. And some research shows they don't want to work as hard as their parents did. They want to be active parents, have social lives outside the office, and participate in recreational sports.

These younger buyers have limited financial resources. Consider how they will pay for the business when you finally decide it's time to retire and enjoy your life in other capacities. On top of that, given the recent credit crisis, I don't think we know what the impact will be on the ability to finance the transition.

The big question to ask yourself about succession is: What do you want?

Define what you want
What do you want life to look like? Consider when you're on vacation-do you ever seem to spend more money? Being at the office is a great way to reign in expenses. Businesses provide their owners with significant benefits, whether it's the car you drive, the trips you take to conferences (that just happen to have a golf course attached to them), or the lunches and dinners you expense back to the company. What does it really cost you to live the way you want or have become accustomed? What will you do to fill the time?

Successor
Can you let go and work with someone else? Can they work with you? Most business owners are great at making decisions, relying on both their instincts and data. These attributes won't necessarily serve you well in picking a successor.

Tax efficiency
If you're planning on using immediate family for succession purposes, get a clear handle on the tax implications. The coveted Capital Gains Exemption is not available to most family succession plans, if using internally generated profits to fund the buy-out.

Independence
How do you keep from getting sucked back into the business if the buyer can't keep it afloat and pay off his debts to you? Because, more than likely, you have had to extend some financing. Do you have enough independent capital to avoid this from happening?

Integration
How do you shift from being totally in control to being totally out of control? You have no control over customers, employees, or the direction the business takes. No control over the markets either, which is particularly difficult for those business owners who continued to reinvest in their business because of the 20% or 25% return they received.

Most business owners like the flexibility and independence they achieved by running their own business. Succession planning requires them to be logical and methodical, and, to a certain degree, it may feel like they're being handcuffed down a path. Most of the issues are non-financial, but they collide with the financial issues, and have the potential to throw the whole process off course. Make sure you have somebody on your team who understands both.

Selling your business will likely be the biggest competitive threat you have ever faced in business. Only the best will get what they want.

Peter Boyd, CA, CFP, is a wealth management consultant with Owens MacFadyen Group, an independent wealth management firm serving the needs of entrepreneurs and professionals. He has almost 20 years of experience helping entrepreneurs and focuses his practice in the areas of succession planning, tax planning, investment management, and estate planning.