10 steps to effective succession planning
Succession Planning
When There's No Apparent Heir
By Theodore P. Burbank, FCBI
Do you sometimes find yourself wishing you were an employee and not the boss? As
the boss you aren't concerned with being fired, but -- neither can you quit. Too
much depends upon you for you to even consider quitting. The business you worked so
long and hard to build, your employees, their families and yours, rely upon you to keep
the ship on an even keel.
Perhaps you have read articles on succession planning - how to pass the baton to family
or employees. However, the kids don't seem interested in taking over and you don't
have an employee who could fill your shoes. What to do?
Somehow the thought of selling your business is distasteful to you. Perhaps
because the business is a reflection of you. It reflects your vision, personality
and dreams. The business is almost like a child in that respect. You don't sell
children, do you? Certainly not, but as the child matures natural forces of nature
call for a change. Eventually the child marries and begins a new family. The
new family contains elements that are a reflection of you. This is the way our
values and principles continue.
Succession Planning is very much the same in that the suitor has to be the right
person, one who will do right by the business. In addition, you will expect a
handsome dowry before you give your approval and let the new operator take over.
Ten Steps to Effective Succession Planning
- Face the reality that both you and your business are constantly changing.
Eventually the needs and requirements of your business will conflict with your
personal lifestyle needs (See One Minute Quiz for Business
Owners Only).
- Develop some non-business interests. Make time to develop these outside
interests.
- Begin to establish financial resources independent of your business. Take
advantage of opportunities outside the business as well as tax advantaged retirement
programs.
- Start sooner, not later. Transition takes time. You have a lot to do
before you can let go.
- Identify your ideal replacement. Only when you understand what your company
is today can you identify what it could be tomorrow. List the skills, interests,
talents and resources your successor must possess in order to capitalize upon the
opportunity your business represents.
- Prepare the business for transfer. Take stock of those areas where your
personality, skills or influence are key elements of your firm's success. Begin a
program to transfer these activities to others within the company.
- Review the company's financial statements. In most private companies the
need to show a profit is overridden by a desire to minimize taxation. Make sure you
and/or you accountant hasn't done this job too well. It is important for a wary
suitor and his/her advisors to be able to easily identify the discretionary and non
recurring expenses that can be added to profits.
- Trim or eliminate those activities, expenses and personell that exist essentially
to satisfy your personal and/or ego needs.
- Seek and use advisors. Succession planning is very personal and can be an
emotional process. It's not unlike giving your daughter away in marriage, or to
some, putting a child up for adoption. This is a once in a lifetime action.
You need every advantage you can garner.
- Determine the value of your company. In order to accomplish this you need
to know the difference between the various types of buyers active in today's marketplace.
To some your company may appear worthless, to others it may be worth millions!
Summary
Before you act, you must prepare and have a plan. Ideally you will :
- understand what your business requires of its succession management
- will know what your business is worth and that the timing is right
- will have identified the attributes of your ideal successor
Ultimately, one of two options exist for every business owner. Either, (a) the
succession of your business will be an event controlled and planned by you or, (b) it will
be an unplanned occurrence brought on by outside forces. Others point out more
harshly that eventually; either a succession plan is implemented or the business closes
down. For the good of your business, your employees, customers, vendors and family
-- decide. Decide to begin planning your succession now.
This article was condensed from "In & Out of
Business . . . Happily"
Mr. Burbank is President of Lighthouse
Financial, LLC. Since 1979 he and his firm have participated in more than
2,000 business transfers. He is the
author of "In & Out of Business . . . Happily" - "Buying a
Business Made Easier" - "VALUware 6.0" Business Valuation
Software - "DealMaker 4.0" A 6 Part Business Acquisition Software
System - "DealMaker docs" Transaction Documentation Software all
published by Parker-Nelson Publishing. In
addition he is a contributing author to "Merger and Acquisition Handbook
for Small and Mid-Size Businesses" and "Business Valuation Handbook
for Small and Mid-Size Companies" both published by John Wiley and Sons.
Ted is available for private consultation and valuation assignments.
He may be reached by telephone: 1- 508 794-1200
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