It’s never too early to start your process for Succession Planning. Mapping out both your personal and professional goals, as a business owner, is critical to long-term success.
Many organizations don’t start thinking about succession planning until it’s time to sell. We educate businesses on the value of creating a succession plan ahead of time for many reasons. Those companies that have put a plan into place well in advance have benefited greatly in comparison to those who wait.
For us personally, when we started Brixey & Meyer we looked closely at what our succession plan would be. I look at my role today and know that I will be with the company for many years before it’s time to retire, but succession planning is still very much a key focus.
Because we feel so passionate about implementing a succession plan before transitioning our business, we’ve created 10 steps to consider, with corresponding questions to begin asking yourself as you start evaluating your succession plan.
1. PERSONAL VISION: The first step is to review your personal vision and timing. We challenge our clients with these questions as they consider growing their business. What will be my day-to-day activities at work, even if it is the same as it is today? What percent of the business will I own? Will any of my family members be involved in the business? How will I handle it if one family member is involved in the business and others are not? Will there be a qualified successor in the business, either family or non-family?
2. WHO IS THE SUCCESSOR: Will you be selling to a strategic partner, a key employee, a family member, or taking to market to an outside party? When you think of succession planning, you have to think of who could potentially buy your business and what would be attractive to them.
3. VALUE: Most companies don’t have a good feel for, or they overestimate, the true value of their company. When considering value, it’s important to think of after-tax and after-debt payoff.
4. KEY EMPLOYEES: Create a plan for what you are going to do in order to attract and retain key team members. Phantom stock agreements and stock appreciation rights are common tools we recommend in order to attract and retain talented individuals. A lot of the value of your organization is not going to be you, per se. It’s going to be those key employees you’ve put into place that will drive that value.
5. FINANICAL STATEMENTS: The next step is having sound financial statements. Anytime you are looking to transition the business, having sound financials is highly critical. Routinely evaluating those financials and ensuring that they are in good shape is an important step in this process. It is critical that your financial statements can be used as a tool to proactively manage your business.
6. INSURANCE: Coinciding with the importance of financials is that of insurance. Do you have the proper insurance and correct buy-sell agreements in place today? Although your succession plan may not be occurring for years to come, if something were to happen tomorrow, do you have everything in place for your family’s financial well-being?
7. IS MY BUSINESS TOO DEPENDENT ON ME: The next step is hard for many business owners to consider, however, it is important to make sure the business doesn’t become too dependent on you. The more your business depends on you, the less valuable your business will be when it is time to sell. It is critical to make the business less about you and more about your team.
8. CULTURE: One of the largest assets of any organization won’t be found on a balance sheet. This asset is culture. Making sure the culture fits and is aligned with your vision is important. Gaining feedback from your employees, as well as others, is important when evaluating if you are in-line with what you want your culture to be.
9. R&D AND INNOVATION: Another key component is R&D and innovation. You must continue to invest in these two pillars in order to grow and set your company up for success. If a transaction is about to occur, companies will oftentimes look at saving money rather than staying at the forefront of R&D and innovation, even though their financials/cash might take a short-term hit. You need to make the right investments to show that you are staying innovative with your business.
10. WHAT’S NEXT: Retirement sounds great when you are thirty, but at an older age we see that it’s harder to retire because the business often defines who we are with time. Business owners often struggle to separate their business from who they are, which many times can lead to depression. Things you can think about, and plan ahead for, are the charitable organizations you want to be involved with, where will you be living, and your involvement with friends and family. What will all of this look like once you retire? You don’t want to get to the point of retirement without considered these things, as your network will no longer be the business you once grew.
This article was originally written for the Goering Center, you may visit the original article here.