Key steps for successful business owner succession
When you are ready to step away from your business, Decision Associates recommends you consider these six key steps for a successful succession. Our experienced succession planning consultants are great resources as well.
- Start early! A three to five-year window allows more time to enhance the value of your business, more time to develop successors, and if needed, more time for selling your business. This window also provides the necessary time to address tax, trust, and estate planning considerations. If you do not start early, you may be faced with choosing and dealing with forced (usually poor) options.
- Be realistic! While many businesses have great potential, they still may not be attractive enough to satisfy a strategic buyer. Often, the solution is “growing” a buyer. These buyers may be already in the business – your children, the management team, the employees (ESOP). They may be entrepreneurs or even competitors. While the “growing a buyer” approach takes more planning, it often can reap the best financial and emotional return on investment.
- Use professionals who specialize in business succession. This is a once-in-lifetime transaction that is full of pitfalls in areas such as regulatory compliance, tax law, management succession, business valuation, contracts…the list is endless. Every error or omission can cost hundreds of thousands of dollars and all of it comes out of your payday. Hire attorneys, accountants, and consultants who know the business of succession.
- Get a business valuation early in your three to five-year window. If you plan to sell the business, this gives you time to enhance its value and improve saleability. If you are transitioning the business to children, it helps your professional advisors, banks and your children prepare a financial transition plan. Get a new valuation every two years to track value improvement.
- Teach your successors the business – do not assume they “picked it up!” You have unique business skills and industry insights that took years, perhaps decades, to develop. The better you are, the less likely it is that your successors have developed these very skills. Create a development plan that moves responsibility and accountability to the successors while you are still there to coach, mentor, measure, and serve as a safety net. Even if you ultimately sell the business to an outsider, you have done your team a favor by making them more valuable.
- Have a plan for yourself. Far too many businesses end up in a succession emergency because the owner could not start the succession process or started but never finished (“why doesn’t Dad just retire!”). Why? Because they have spent a lifetime on meaningful, high-value work and they need that “fix” every day. If this is you, use succession planning to negotiate a role for yourself that creates value for the business but does not threaten the new owners. Another option is to take a role in a different organization, such as a non-profit, industry trade organization or other place where your skills are really critical.
Learn more about Decision Associates’ succession planning services: