Will You Succeed at Succession?
By Dann Van Der Vliet
You are a successful owner. You motivate your employees, manage projects and utilize the resources available to you in your business and networks. You are entrepreneurial, always looking for new ways to grow and transform your enterprise. You have a long-range vision of success for your business and personal future. Do you also apply these same passions and principles to planning your exit from the business?
The reality is the majority of business owners do not. Many owners become bogged down in the day-to-day operations of running their businesses and lose sight of putting in place people and processes that govern long-term success. Furthermore, simply facing their own mortality is enough to scare most owners away from planning for their exits. In 47.7 percent of family business failures, the transition and ultimate collapse of the firm was precipitated by the founder’s death.
For the 80 to 90 percent of businesses that are family-owned, succession planning may be an even more daunting task but wholly more critical. Family businesses come equipped with the burden of history wed to the pride of the family name.
While succession planning may evoke comparisons to a poorly administered root canal and easy enough to put off for another day, you should start now. As CEO and chief strategist for your enterprise, it is critical for you at all stages of business growth to put the plan in place to continue success after you have left the company.
The following checklist is a primer for getting you started to plan succession in your business. Remember: Succession faces all businesses and owners. Planning now allows you to call the important shots, not Brother Bob or Uncle Sam. It also will provide for a semblance of continuity despite unforeseen circumstances.
- Set goals as the owner. Be sure to include a time line, financial needs and constraints, and identify your post-ownership lifestyle.
- Set goals for your stakeholders as well. Include family members that are in the business as well as out of the business. Include partners and/or investors. And do not forget your employees. In the absence of information, employees operate in fear.
- Clearly define the stage of your business as it relates to owners’ exit goals. For early-stage businesses, now is the perfect time to build in succession while the canvas is blank. For companies in growth stages, a clearly defined succession plan adds contingency value. For mature and established firms, a well-written plan becomes a living document and adds to the company’s legacy.
- Conduct a formal business valuation. Have this professionally done. Plan on it costing from $5,000 to $10,000, and allow approximately eight to 10 weeks from start to finish. It is a wise investment of time and money and removes personal emotions from the actual value of your business.
- Assemble your transition team. Start with your family. They have a critical stake in helping the business succeed. Include professional advisors from the financial and legal fields. An executive coach also will help you remain on task. Leverage your peers’ expertise by creating a board of advisors. Many statewide networks exist to assist you with this. Take advantage of these professionals. Their primary focus is helping you achieve success.
- Explore options. Will you keep the business in family? If so, what roles do buy-sell agreements, gifting and trusts play? Perhaps an outright sale is best? Will it be to a third party or strategic buyer? Consider an internal sale. Employee stock ownership plans (ESOP) are gaining incredible favor and provide for certain tax savings.
- Have a contingency plan. Death or sudden disability can create a loss of business value if no plan is in place and those left to figure out the future systematically pull the business apart.
- Identify a successor and future management team. This will require identifying key positions and the tools needed for them to succeed. Give them time now to develop their skills to be ready for that inevitable day.
- Develop an actual plan – written and documented. Manage the plan much like you would launch a new business venture. Stick to your goals and time line; be sure to share with others, especially family. And do not forget your employees and the role they have played in your success. It does not end here. And manage the plan. What will you do when you exit? Have a plan for when you leave and work toward that. Ask yourself, “What will I do if I succeed at this?” Look how far that has already brought you.
Your business is your investment. Planning for this future success only increases the value of your investment and ensures a lasting legacy for all those who are involved with the business: family, employees and the many stakeholders that have contributed to that success. Be sure to involve them where needed. And, by all means, start today!
Dann Van Der Vliet is director of the Vermont Family Business Initiative and of the Vermont Business Center.
Last modified November 01 2007 12:52 PM
