Posts tagged with: transition planning
Along the lines of ‘begin with the end in mind‘, start this new year with an eye towards identifying who will be your successor and how you will implement your succession plan – even if you anticipate it will be decades into the future.
Here’s a personal story to make my point:
At age 34, my father launched his business with two partners in 1960. The business grew to 5 locations, received many accolades, awards, interviews, etc. In 1982 my father was diagnosed with cancer. By 1984, he was too jaundiced to appear at the office or be seen by clients. That’s when he invoked the buy-out clause in their partnership agreement. He had that exit strategy established from the day they opened their doors 25 years prior when he was young and healthy.
He knew his partners would be his successors if anything unforeseen should happen and vice versa. They had structured their agreement that way from the outset. He never dreamed he would be the one to have to invoke that paragraph of their business plan. But when he needed it, he could and did. They bought him out and the business continued without a hiccup. And my father was able to secure my mother’s financial future quickly and easily.
Many if not most business owners avoid, postpone and in the end fail to plan for their business continuity in the event they can no longer work due to death or illness.
- They subscribe to the naïve theory that they’re too young to worry about succession or retiring or their exit strategy – even after age 65!
- They assume nothing will ever happen to them, they’re too healthy, to vital and too important to the business. The logic they use is: “If I don’t think about the ‘what if’s’ – they can’t happen…”
- They don’t bother to create a business succession plan to address an unanticipated event such as disability or death – which can occur any time.
Ideally, every business owner should start planning their succession, and work himself or herself out of a job from the outset, even in the business plan.
It’s never too late to start today.
With an eye for hiring, grooming and cultivating successors in various aspects of the business, you have time to instill your strengths and values wide and deep throughout the organization.
For CEOs of small and medium size businesses, the business is a primary asset they will need to liquidate to fund their retirement and provide for the financial future of their families.
If you intend to sell your business to a third party, then becoming detached from the day-to-day operations is a straightforward strategic process you need to put in motion.
As the seller, in order to maximize the value you can realize from the business and produce a financial gain, you must shift the value of the business from you personally, to the business itself. The sooner you start focusing on this long-term objective, the better the outcome for both you and the business.
Alternatively, if you wish or intend to keep the business in the family, your choices for successors can shift or be constrained by family requirements, needs and politics.
Succession planning is the responsibility of you the owner, not your management team or the next generation. You must develop your succession plan in sync with your own transition plan to balance the best interests of the company with all its employees, vendors and clients; and the requirements of you the exiting owner who needs capital to fund the rewarding lifestyle you deserve as the fruit of your labors.
Succession planning is only one piece you need in place for a strong integrated strategic plan including operations planning, transition planning and contingency planning.
Don’t start on the finish line. There are five arts to master to build wealth and exit your business. That takes time.
Strategic Planning – The Art of Direction and Decisions
Building wealth and exiting your business don’t start when you are closing in on the finish line. It’s proven that when you focus on selling your business two to five years before initiating the sales process, you will almost certainly realize a much larger return. Developing a systematic approach to growth with a focus on your long-term goals makes every decision along the way easier, even in the face of risk, incomplete information, or unexpected change.
Continuity/Succession Planning – The Art of the Changeover
A systematic approach to succession planning gives you control, choices and sufficient time to choose, train and transition management, of your business. Your job here is to maximize the value you receive when you sell or transfer your businesses. You need to identify an owner-centered approach to exit planning based on your goals, objectives and concerns.
Exit Planning – The Art of Monetizing Your Business
Exit planning for wealth is all about maximizing and preserving the transferable value of your business. It’s extremely important to integrate personal, financial and estate planning goals; and then coordinate them with the growth goals and opportunities of your business; to maximize profit and minimize tax liability on both sides. Your fiduciary objective is to transfer ownership and corporate value as profitably as possible.
Contingency Planning – The Art of Structuring Your Business For Opportunities, Possibilities And Growth
CEOs in general never take time to develop contingency plans. They are building a prosperous business not planning for a crisis or its demise. Skipping this one element of their business minimizes the value they can expect a buyer to pay for the business. You must develop those contingency plans and build the foundation elements to maximize valuation and make the business buyer ready.
Transition Planning – The Art of Reinvention
When you stop and think about it, most entrepreneurs do not measure success in terms of the financial rewards, but rather by the freedom and potential legacy that these financial rewards confer. But entrepreneurs often postpone transition planning because they struggle with how they would use their new freedom and how they want to define their legacy. You need to learn to find new purpose, community, and structure for your time; and then how to master wealth management and its new challenges and responsibilities.
Working in a vacuum, the assumption is that Exit Strategies Are Difficult.
Most CEOS assume exit strategies are difficult. That assumption discourages anyone who is considering an exit from getting started early.
As the CEO of your growing enterprise, it’s easy to be so consumed with the day-to-day operations of the business, that you never find time to think about your exit strategy (knowing it is going to be difficult). So naturally, it simply gets shuffled to the bottom of your TODO list and never rises to the critical path until it’s too late.
You can minimize how difficult your exit is by being proactive, starting early and committing to the bigger plan to achieve your ultimate goal. As a discerning entrepreneur, you know your business is your largest asset that you need to monetize if you are going to secure your reinvention (fka retirement).
Exit planning requires numerous conversations and then an integration of solutions in all the following areas:
- Peak performance
- Succession planning
- Contingency and continuity planning for management and leadership transition
- Business valuation strategies to make the business buyer attractive and buyer ready
- Transition planning to your reinvention (fka retirement)
- Tax planning for both the business and the CEO
- Estate planning goals and options from wealth advisors and insurance advisors
- Deal structure options both legally and financially
Your exit strategy will be specific to you, your business, your timeline and your goals.
- There is no ‘cookie-cutter’ approach.
- It doesn’t happen overnight.
The difficulty in exit strategies comes from the multitude of possibilities and recombinations you have to explore and choose from. That’s also where the fun and freedom come from.