Your business is important to you, and changes to it can make any business owner and employees feel uneasy. But, in order to sustain a successful business after you depart, you must plan accordingly and surround yourself with the right tools, resources, and an educated advisor to build a solid succession plan.
Here are the top six steps to guide you in your preparation to build your company's succession plan.
1. Make time to plan
Time can be your friend and your enemy. Proper planning is crucial when it comes to your business’ succession plan. Your two options include now or later. The latter option not ideal since you will no longer be around. The bottom line is to start early and protect yourself, shareholders, stakeholders, customers, and employees to ensure proper protection of their interests and investments in your company. Your goal during this time is to select your successor after reviewing the person’s talent and qualifications, work with your financial advisor/CPA, and begin developing your succession plan. The second option, which is not necessarily the best, is post-mortem and may lead to a free-range approach of plans and ideas of choosing your successor. The one you choose (while under the pressure of doing it last minute), may not align with your goals. The first option, in my opinion, is most effective and the best practice.
2. Select a transfer option
You have three options when you decide transferring ownership: transferring ownership to a family member, transferring to a non-family member, or disposing of the business through a sale, management buy-out/buy-in, or voluntary liquidation. Asses your options and make a decision that is in the best interest for yourself and the organization. Choosing a successor within the family is most common when he/she works within the business. But, what happens when he/she doesn’t want to take over the organization? Or, what if they're not capable of running the business? All these are great questions that can be proactively addressed.
3. Place a value on your business
Once you've chosen your successor, you want to bring in an independent third-party financial advisor/CPA to value your business and determine its worth based on revenue, fixed assets, profitability, and a variety of balance sheet items.
4. Prepare and train your successor and leadership team
Your chosen successor may need time to catch up to speed on the business needs and day-to-day operations. An introduction of him/her is warranted at this time to the team. Consider an apprenticeship and hands-on training to allow that person to become familiar and confident in their preparation for their new role. This is also a time when you may experience new ideas and possible plans for the business your new successor envisions. Be open to them and include your management team in key decisions so that they are in the loop and understand the vision of the new successor. You may also begin the hand-off of business relationships to your successor while managing him/her so that they build solid relationships with all shareholders, stakeholders, employees, and your customers as you prepare to depart.
5. Make the transition
Once you have implemented your succession plan, giving up control can still be difficult, but you can choose to do this over time. Consider taking advantage of a smooth transition so you do not feel the financial impact abruptly nor give up the potential long-term tax advantages of passing partial ownership to your successor. Good planning is good business. An effective succession plan will result in financial success for everyone involved.
6. Evaluate the process
Once you have processed the transaction of your new successor and he/she is in their new role, review the positives and negatives of your plan. Recommendations and suggestions for improving the process can be helpful the next time around for all parties. Make any necessary changes for future use and applicable programs.
A properly planned and executed succession plan will ensure a smooth transition for your new leader and the business. Your successor will have the confidence and buy-in from their team leading to a profitable and prosperous future.
We are here to help you make this transition smooth and would love to hear your story. Share your succession plan or best tip and how it benefited you and your company.