Business Succession Planning Smooths the Path of Ownership Transition

By PAUL TWEDT

“Broad and deep preparation, both mental and emotional, is necessary for successful leadership. It’s important to mentor a possible successor to share your passion for the business….(and) use a team of succession experts to make a difference.”

Exiting the business is something most entrepreneurs don’t think about. Yet, having a succession plan is essential for anyone who ultimately wants to realize the full value of their business. Without a formal succession or transition plan, a closely held business risks not only its longevity, but also its bottom line.

While 80-90% of businesses in the U.S. are family owned, fewer than one-third succeed into the second generation—and just 10 percent survive into the third.

Why succession planning?

Few events in the life of a small business are as critical, visible, or stressful as when its owner leaves. The eyes of every employee, customer, supplier, and stakeholder focus on the outgoing leader and the preparations that ensure that the company succeeds without him or her. Family owned and closely held business owners often never take the necessary steps toward a smooth transition in leadership.

Typically, they don’t clearly identify a successor, or they failed to prepare their company to succeed without them.

One way to greatly improve the successful sale of a business is to strengthen it from the foundation up, focusing not only on the technical details of the business but also on the people and processes that can help maximize its value. To ensure that the interests of your selected stakeholders align with your business, and to make certain you have the right people supporting your efforts, consider the following questions:

Which of your key employees have the ownership mentality to take your business to the next level? Simply because someone has been second in command, or is related to the family, doesn’t mean he or she is necessarily the best choice to succeed you. The right person is often the type you may have avoided hiring in the past—an entrepreneurial leader just like yourself.

What steps are you taking to mentor a possible successor?  Broad and deep preparation, both mental and emotional, is necessary for successful leadership. It’s important to mentor a possible successor to share your passion for the business.

Do you have a plan for a pool of talent in key areas of your business?  Potential buyers often look beyond the spreadsheets to the quality of the employees behind the numbers. It pays to have some simple processes and procedures for evaluating the performance of employees and identifying where potential gaps exist for placing future talent.

How will you reward these select employees? If there are people you’d like to take care of in the transition, such as certain non-owner employees who helped make the business successful, be careful that this desire doesn’t conflict with the economics of getting the deal done with the buyer. An incentive-based compensation program tied to company performance can sweeten a transition plan by fairly compensating employees whose contributions impact the most, and by encouraging them to remain after the transition.

Don’t go it alone!

You spent a lifetime successfully driving your business forward. Selling or otherwise transferring that business can be one of the most challenging tasks you face. Use a team of succession experts to make a difference.

At minimum, work with legal, accounting, and other financial professionals experienced in the field of succession planning who can help with a seamless, productive, and unifying transition. Advisors can help you assess your own strengths and weaknesses, so that when the time comes you’ll be well-positioned to transition your business on your terms—when you want, and how you want.

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