Business Succession Planning: How to exit your business*/
Does your business success hinge on your presence?
It can be incredibly difficult to let go of something you’ve poured time and passion into building. But, a business owner can not stay at the helm forever.
Inevitably there comes a time to step away – be it due to exhaustion, a health emergency, retirement, passing the reins to the next leader, or pursuing a new passion. Whatever the reason may be, it pays to have a business plan in place to guide your company and staff through the transition.
Effective succession planning ensures your years of hard work don’t dissolve in your absence. It ensures the ongoing vitality of your business while adding value to your company.
The importance of planning
We encourage our clients to think of succession planning as a blueprint for their legacy. How do they want their company to look in their absence?
We’ve spoken previously about the figures behind failed succession planning. As a recap, Deloitte data revealed that in family-owned businesses without a managed transition:
- Only 30% survived into the second generation
- 12% survived into the third generation
- Only 3% survived thereafter
Implementing a thorough succession plan is the key to ensuring the ongoing vitality of your business. After years of dedication and hard work in your company, the last thing you want is to see it fail at the final hurdle – your departure.
A strong succession plan also adds value to your company. This not only makes it appealing to potential purchasers of your business , but it gives justification to increase your asking price.
Timing your exit
Knowing when to leave is almost as important as knowing how to leave. An unfortunate reality for many business owners is that we don’t always have a say in when it’s time to bid farewell to your business-baby.
Burnout, health issues, or personal matters, may call at any time. Having a succession plan in place allows your business to weather the storm and transition smoothly through your unexpected departure.
If you do have a say in your exit strategy, then you have the added luxury of timing it to your advantage. This could give you time to work on the growth to countdown to your exit or plan a more immediate exit strategy.
At the end of the day, your company is an asset, and maybe one with substantial value attached to it. Timing the sale of this asset ultimately comes down to the outcomes that you want to drive.
If there was a word of wisdom we could impart on all business owners, it’s this: don’t let emotion prevent you from missing a prime window to sell.
The goal? To leave your business while it is in a thriving state and you have the energy to carry your company into its next generation.
Exit stage left
The key now becomes implementing a plan that allows your seamless removal from business operations. The ultimate baton changeover.
This process begins years before you depart the business for good.
This lead up is crucial. It allows time to identify the strengths of your company, and any underlying weaknesses that may be exposed by your absence.
Below are some basic steps to setting out your succession plan:
Remove yourself from the success of the business
As the owner of a business, its success has inevitably been built upon your skillset, networks and experience. This can be a hard thing to replicate. Begin by progressively removing yourself from the success of the business.
Empower your employees to adopt more responsibility and autonomy. Create new connections between your company and your network. Implement project management software or automation.
Ultimately you want to ensure the workflow of operations aren’t dependent on knowledge you alone possess.
Identify your succession team
It’s equally important – if not more important – to choose the right transition team to compliment this gradual fade into the background. This can mean looking beyond the typical ‘next in line’ candidate. Look for employees who show the skills needed to thrive in higher positions, regardless of their current role.
Making the sell
If you are trading in your business hat for retirement, then it’s important to weigh up how much money you will need to generate from the sale of your business to support your intended lifestyle. This should take into consideration the tax implications of selling your business.
Maybe you’re itching for a reprieve from the demands of running a business, or maybe you just want to set your business up for long term success? Whatever your eventual exit strategy may be, our business advisors can map out a succession plan that ensures your business legacy is indestructible.