Are Your Business Succession Plans in Place?
In my dealings with business owners over the years, there are a number of similarities that consistently are apparent in dealing with company succession plans: there often isn’t an absolute succession plan in place; not enough time exists between planning an exit strategy from their business and executing upon it; and part of their retirement strategy entails selling their business in some way, shape or form.
Enclosed are 7 succession planning best practices to start you on your way:
- Financially Plan As If You’re Winding Down Your Business: Finding a successor to your business is not an easy task. Whether it’s a succession within your family, an employee within your business or whether you’re looking at an outside suitor, planning financially for the worst-case scenario will serve you better now and down the road. Coaching business owners that managing as if they are winding down their business will prepare you financially for the worst-case scenario. If you can broker a deal for the sale of your business, then this financially will only be considered a bonus. Additionally, the sale price of the business will not need to support you financially in retirement. Therefore far less emotion will be involved in the sale.
- Allow Enough Time For It To Become A Reality: Several factors need to be adjusted to; financial, emotional, psychological and physical factors all impact the business owner when looking at the succession of one’s business. By allowing enough time to consider all these factors, it will allow you to emotionally adapt to the idea of potentially leaving your business over time.
- Thinking About A Succession Strategy Doesn’t Mean Doing It Tomorrow: Too many business owners get to the point that they’ve hit their breaking point and ready to pull the parachute. Not only does the last-minute plan to exit impact the selling price of the business but it doesn’t allow the business to start performing without the business owner at the helm nor does it allow the business owner to function without the business. A long preparation of the business operating without the owner prepares all parts of the business to adapt accordingly. Also, fill in any holes or voids that may exist without the owner being there.
- Align With Your Company’s Business Strategy: The eventual exiting of an existing business owner needs to be taken into consideration when looking at the company’s long term business strategy. Being to small or large focused will attract or detract from potential buyers. Expanding into different product markets or service offerings will diversify the company’s revenue stream and help to solidify its client base. A more secure client base translates into a higher sticker price.
- Prepare For the Company To Run Without You: By preparing the company to run without you will ease in the transition to a new ownership group. By taking mini-vacations from the business leading up to his/her exit, you allow employees to get used to you not being there, being more autonomous in decision making and making the business owner more comfortable that the business can run in their absence.
- Consult a Board of Directors, Peer Advisory for Advice: If you have a Board of Directors and if not consult with an informal Peer Advisory group. Conversations about transitioning power, internal talent and promotions and potential financial challenges can be sorted out in an informal, time-sensitive and confidential manner and access expertise who have been through the sale of a business in the past and offer invaluable advice.
- Make A Serious Commitment To Individual Development: If you plan to exit the business eventually, then you need to ensure that your employee talent pool is up to the challenge as well. Investing back into your employees will result in an ROI that is easily justified and leave an infrastructure of talent in place that will not miss a beat upon the transition of the business and translate into huge dividends during the sale of the business.
Regardless of your preparedness to go through the succession plan of your business, attention needs to be paid to your financial plan, your executive infrastructure and psychological exit strategy from the business over time and most importantly to plan for your exit well in advance of the planned date.
Chris Coulter is the Founder and President of The Finish Line Group. Chris works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms.
Chris’ passion for what he does evolve from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth. Chris found out the difficult way and now educates business owners on how to avoid many of his former oversites and ultimately control where their finish line ends.