When you’re actively running your business, it can be hard to even contemplate next week, let alone the months and years ahead. There are so many moving pieces at any given time, and your focus is usually pointing towards growth rather than stepping back. Yet ultimately, there will come a time where that focus will need to change.
No matter how healthy your business is, or how financially successful you may be, you simply cannot run your business forever. Whether you retire, or pass on while still at the helm, eventually that business has the potential to outlive you. Yet a business outliving its owner does not happen simply by accident.
Good succession planning is critical to keep your business a going concern long after you’re gone. Maybe you have children or relatives who want to take up the helm, or maybe you’re looking to pass off the reins to someone from within the organization. No matter what your decision, having a plan in place means you’ll be well-prepared for whatever comes next.
So what do you need to think about when it comes to succession planning? Here is some food for thought…
It’s all about talent
How many large corporations have you seen where the family business does not survive a third generation of ownership, and sometimes not even a second? Passing a business onto your children or grandchildren may seem like an ideal solution, but this is not always the case. While they may be loyal to the family’s best interests, lack of knowledge and/or skill can often lead to downfall.
Family succession is not the only way to strategize about the future of your business. You may have candidates from within your internal management team who are well-suited to leadership and have spent years working their way up. They may even be looking to take part ownership and invest in the business themselves, further broadening their ownership.
Perhaps neither options are available, and you need to recruit externally. What will you be doing to make the business an attractive place to work? Are you looking for an experienced CEO with a background in your industry? A visionary who can take things to the next level? Or simply someone to come and take direction from the Board of Directors?
Ultimately your solution may be a hybrid of all of these, or some other option that works, but ignoring the issue completely will only do the company a disservice. Remember there are also emergency scenarios, such as unexpected death or incapacity. Having procedures and strategies in place can help make sure that transition, while rocky, goes as smoothly as possible.
Are you financially healthy?
When you think of your business as a going concern, you often have your mind turned to the business’ finances. Am I making enough money? Are our revenues up? Are we keeping our expenses under control? What do the forecasts look like? These are all important considerations, but as you move towards succession planning you realize they’re going to become someone else’s priorities.
If you are contemplating selling the business at all, or even introducing someone new into leadership, they will almost certainly have questions about the finances. They may even recruit the services of a financial professional, who can review the books and provide a more comprehensive report of the financial health of the business.
If you’re preparing to sell your home, you’re going to take certain measures to make things look right. You may not conduct major renovations prior to a sale, but it is not uncommon to fix small things, patch holes, paint, landscape, or do other manageable tasks to make your home look its best. Treat your business the same way - that attention and care can save the next owner a tremendous headache.
Know the value of your business. Know how your business is valued within your industry, whether that’s based on EBITDA or another common standard. Know that if you are looking to sell, you may not get everything that you want depending on the market, but figure out where your priorities lie and what may be a non-starter.
What will your role be?
Every business owner has a different vision for what their ideal succession plan looks like, particularly when it comes to them! If you were to pass the business on, or to sell, what interest would you want to maintain in the day-to-day operations? How involved do you really want to be?
This can look different for everybody, but it’s important to think about. Do you want to stay on as part of any changeover in some sort of advisory or emeritus role? You’ll lose your position in management, but are you comfortable still being the face of business development, or helping to transition old clients?
Would you rather hang up the keys completely, and simply be a friendly voice who’s only a phone call away? Or, if you do ultimately sell to a third-party that doesn’t want you involved, are you comfortable walking away entirely? You may get your desired price tag, but you might also have no control over the future of an empire you built. Not every founder can stomach that, so decide what’s important for you.
Final Thoughts
Succession planning in business can take many different forms, but it can also be a tremendous stressor if left entirely unplanned. No one knows what tomorrow brings, but if the day suddenly comes when you can no longer run your business, it’s always good to have a plan in place. That way, when you do step back voluntarily, succession planning can be fully within your control.
We routinely work with business clients who face these exact same issues. Businesses generally do not have a wide swath of investors, or a huge Board of Directors calling the shots. The decisions that you make matter, and we’re here to help make sure you’re basing those decisions on good advice. Contact our office today.
