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Have You Thought Of The Need For Succession Planning As A Business Owner?

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Authored by Louis Mosca

People become the owner of a business for a variety of reasons. Though some inherit the business from their parents or grandparents, many go into business for a simple reason: They want to be independent.

The belief that they can do things better than everyone else, the allure of freedom, and the determination to build their own wealth is the driving force behind every business owner I’ve ever met.

The normal evolution of a business begins when you’ve started or bought it. You build and design it, you create something special, and then at some point, you usually begin planning for an exit strategy, or succession plan.

Whether that succession plan means a big pay-day, sale, or a transition to someone else, there comes a time when an owner must ask themselves what kind of legacy they wish to leave behind with their business?

A succession plan should be treated as a business plan, and that means having a clear vision of how you want things to look in five years. You have to determine where you want to be, how you want to be involved, and what you really want to get out of it as the architect of your business, and your exit strategy.

Is your design one in which you sell to a third party at a set price, do you see your business living on in perpetuity through one of your children, or do you want to sell and maintain a certain level of involvement?

Let’s say in five years you want to sell the business. Start the process by identifying potential buyers and determine how they make acquisitions. Look at how they’ve valued companies, and how they’ve integrated, merged, or purchased those organizations.

 

Maybe you want to create an ESOP. Start by interviewing two-to-five ESOP members, from other organizations, and see how it’s worked out for them. Pay careful attention to the pluses and minuses, and then create a valuation for the business, figuring out where the funding is going to come from. Are you really willing to put your business on the sketchy ground, so it can borrow enough money to pay you off?

If you want to transition power of the business to a family member, you need to consider the procedures and steps that will ensure a secured transfer. That means training, education, and hands on experience building for the person who will ultimately lead your business.

Ten years ago, we were working with a construction client, a father, and son business, who was doing about $30 million dollars. The father, getting on in his years, wanted to start preparing his son for taking command of the company.

To do this, he had his son go through every type of business and management training program he could find. He’d regularly bring in seasoned professionals that were recommended to him, to teach his son their craft. He knew education and experience would ensure his son’s success.

As each year passed, the father would remove himself a little more from the operations of the business, and relinquish greater control to the son. Within 7 years, the father had removed himself almost completely, and the business continued to grow to a now $85 million dollars, annually.

On the flip side, a few years ago I was personally working with an electronics business owner, who was preparing to transition control of the company to his ill-equipped son. He thought his son could do no wrong, and believed that whatever knowledge he had gained from working in their store, seemed to be enough.

Despite my challenging him repeatedly, to have his son work somewhere else and gain more experience under someone else’s dime, he would ignore my suggestions and warnings and has since seen his business falter under the weight of his son’s inexperience.

Succession planning should not just be a catchphrase; you need to work your butt off to accomplish it successfully. You will need professional help if you want professional results.

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