One of the most important elements of business succession planning is to designate a successor. This individual must be trained in all facets of business operations and have a comprehensive understanding of the owner’s role.
The ideal scenario is to develop business succession plans at the time the company is created. Doing so provides owners with adequate time to create plans for multiple scenarios and train successors in their duties. You also need look at a business exit strategy so that your successor & yourself all walk away happy.
Furthermore, the most difficult part of a business usually comes at the time when transitions are involved. For example, imagine a fairly sizeable company with consistent cash flow. If the owner or chief officer suddenly passes away, with no one immediately in line to replace him or her, the business usually falters.
Succession planning, at its most basic, happens to be how someone chooses things to move forward in terms of organizing leadership in a business hierarchy when they’re no longer running things.
Such planning involves breaking down one’s business in such a way as to assess all team members and their value to the organization. This is not an easy issue to discuss, but it is imperative to the successful running of a business for the long-term. No business, regardless of its size, can operate without the right people in the right place.
In order to best identify what it takes to have successful succession planning, it may be best to identify the mistakes that most business owners make when taking on this particular process.
As is the case with just about any facet of success, procrastination is perhaps the worst thing that can happen. All business leaders know that they need to focus on succession planning, but they sometimes direct their attention to something “more important”. Nothing is more important than the sustainability of your business, and this is a big step in that process. Waiting to long to start the process may jeopardize the decision-making process.
It’s also key to avoid choosing people you like instead of the right people. Friendly relationships can sometimes become strained when someone feels snubbed for a promotion down the line. However, a good business owner must identify the key roles in their business & the skills needed for those positions, thereby narrowing the field of candidates.
WHAT IS EXIT PLANNING
Exiting is more than selling!
Exit Planning is a process involving the development and execution of a series of systematic steps taken to allow both the owner and the “accumulated wealth” to be extracted from the business, via one or more of the numerous available strategies, including:
1. Selling the business to Partners, Strategic Buyers, Investors, Competitors, International Buyers, or the Public
2. Recapitalizing the business for partial liquidity
3. Merging the business to achieve enhanced valuation or marketability
4. Transferring the business to family, management or employees
5. Gifting the business to meet personal and tax planning goals
6. Liquidating or partially liquidating the business
NOTE: EXITING IS A PROCESS, NOT AN EVENT
The Optimal Exit will be achieved through the implementation of a managed process which includes:
1. Establishing a business valuation reference point
2. Clarifying “Life-after-Business” Goals
3. Working with a Team of Specialist Advisors
4. Preparing a written Plan
5. Identifying and evaluating the applicable Alternative Strategies
6. Executing any necessary Positioning or Preliminary Strategies
7. Executing the selected Exit Strategy
Lastly, exiting is a complex subject with many moving parts. No single advisor is an expert in all aspects, so the process should involve inputs from a team of experienced advisors, and should address the possible need to re-position the business before going to market.