What happens when you’re ready to move on to the next stage in your life?
What steps do you take to pass on a business?
There are four primary options:
Pass the business to a family member
Hire a professional business manager and become an absentee owner
Sell to an outside source – which could include employees
Close the doors after harvesting the value and worth of the business
Many owners avoid planning for succession of a business. They would rather endure a root canal without Novocain than think about leaving. While the succession of a business should be explored years before a change is to be made, some business owners delay serious succession planning until they only have a year or two left at the helm. Succession decisions must be considered much sooner.
Here are a few guidlines to help you:
Think of succession as an ongoing process. It takes time, thought and effort to develop a working plan. Start planning immediately. The worst thing you can do is procrastinate.
Know the components of a succession plan – discovery of choices, business facts, time to execute, tax and business planning, and successful transfer of ownership.
Find trusted business advisors. Include an experienced attorney, CPA, and banker or business broker. Discuss your succession plan with these advisors.
Keep the business strong and growing. It is easier for the business to go forward under new management when the business is vibrant rather than constrained.
Be accountable for every business transaction. As the business owner, you singlehandedly have more to do with the daily output of your business than anyone else in the company.
Develop and formalize operating systems for daily business items and procedures for decision-making.
Develop business goals and strategies. Hold individual stakeholders accountable.
Teach decision-making techniques to your employees. Also share leadership competencies. Once decisions have been made, management must support those decisions.
Avoid hurting employee morale, or igniting the rumor mill, by keeping your plans close to the vest until a decision is made.
Ask key employees about their career aspirations. Don't just assume that the career path you have chosen is the desired path for others. Don't make the mistake of "anointing" successors, or even assuming that bright, hard-working, talented employees aspire to higher levels of leadership.
Hold yourself and key management in the business to the high standards the business emulates.
Invest in education, training, and industry trade organizations. This assures your business is at the forefront of your industry and not playing catch-up.
Hold board of director meetings, even if you are not a corporation. Any business can have a board, hold meetings and formalize the big picture of the business. Not only is this good for you, but it helps prepare future leaders and managers.
Formalize business and personal documents such as buy-sell agreements, corporate or business documents, and wills and trusts.
Communicate your desires regarding your business to your family. Do it with all members of the family in one meeting. This way every member hears your wishes for the business at the same time. Discuss with your family the reasons the division of your estate is fair and equitable, maybe not even and exact, but fair in your eyes.
Prepare your successor to take the helm. The successor needs to work through issues and challenges while you are still active in the business. This includes running the business as well as being trained in management and leadership.
Be open to other succession choices. You may have a strong desire to pass your business onto family, but don’t overlook other good business choices from selling the business or harvesting the growth and downsizing the business so the successor has a manageable business to take over.
Consider the tax implications of your business choices and the amount of money available to you for retirement and to your successors to operate the business.
Consider what you want to do with the rest of your life. Most successful business owners must transfer their energy and drive into something – church, family, travel, consulting other investments or hobbies. You are going to have many waking hours in which to decide where to transfer your energy.
While planning for business succession may seem like planning your own funeral, it makes good business sense to address these issues upfront as part of a sound business plan. Successful business succession is a process. It is more than hiring a business broker, talking to your CPA or attorney about business agreements, or buying a life insurance policy. It is the strategic process of developing your business team, maintaining the strength and quality of your business, weighing the options of transferring the business to family, or selling the buinsess, keeping customers and employees, and working through each and every challenge this process throws in your directions.
Remember, succession is a process that cannot be rushed. Use these guidelines as a "How To" leave a strong legacy while you journey into another exciting career called "retirement."
