The Next Chapter: How do I create a succession plan?
Many business owners see succession planning as the development of a plan to eventually sell their business. In actuality, succession planning is more about you, the business owner, and what you want to see happen in the next chapter of your life beyond the business. Your succession plan starts with a vision for the future. It is your roadmap for taking charge as to how your future will unfold. Whether your goals are financial security, family harmony, future health, or peace of mind, ultimately, it is about ensuring you are in control of your own future and how it turns out.
Jeff Bezos stepped down as CEO of Amazon in July 2021, 27 years to the day after he started the company in his Seattle garage. He appointed his successor and left the company he built to begin pursuing other dreams and endeavors namely his space company, Blue Origin. His succession plan, although on a more grand scale compared to the average small business owner, is a reminder that there is a life for yourself beyond owning your company.
All of your hard work to build up your company was done purposefully to provide you with the financial and emotional freedom to begin your next chapter.
A successful succession plan relies on having the right pieces in place in order to know you are leaving the company in good hands.
What Are Your Options?
How you go about creating your own personal succession plan is as unique as you are. What works for one individual or situation may not work for the next; the decision is all yours. Do you want to sell it all and immediately retire? Do you want to continue working and slowly transition it to the next owner? Do you want to remove yourself from the company and just be hired back as an advisor who can provide strategic guidance? Do you want to spend 4-6 months of winter in a warmer climate and bring someone on who can manage the business while you are away? Once you know what options are available to you and your business, you can begin to narrow your focus.
What Is Your Time Frame?
Many factors will affect the length you can endure a succession plan and business sale. Depending on your health, years of desired work remaining and position of the business in the market, the plan can happen immediately or it can take seven to ten years or more. The longer it takes, usually the more favorable the outcome. This is because you have had enough time to maximize the business value both in financial value and in human capital value. You have put the right pieces in place to build the numbers and put the right people in place to run the operations when you start to step aside. If you want to stay working for a few years during the transition, this will affect how long the process takes. In many scenarios, most business owners would be happy to stay on and work if it means they do not have to endure the stress of managing the day to day operations and finances. Understanding how long the process can and will take is important to knowing exactly when to start.
Who Is Your Buyer?
Knowing who you eventually might sell your company to is vitally important to the outcome of an eventual succession. If you have a family member who will take over the business, you can plan specifically for how that transition will happen. If there are a few key staff members or management that have shown a keen interest, the plan will look much different. Many times an outside third party is the eventual buyer and a plan to sell to them is developed in an entirely different manner. Knowing who the exact buyer might be before you start the process will allow you to build a plan around maximizing your proceeds from the sale while making the entire transition process go as smoothly as possible.
Due Diligence Dry Run
One of the best pieces of advice in a positive plan for succession is to start by doing a dry run. Work with your professional advisors to give you a starting point of where the business stands today. They can review financials, internal operations, perform a valuation, test the market, review your competitors and give you an overall understanding of where things are at today. What is the likelihood your business will sell? How easy is it to transition? What is a valuation and what factors are causing that number to be low or high? What is happening in your industry or with your competitors that could make your business valuable today and more or less valuable in the future?
The best way to sum it up is a famous Maya Angelou quote, “You can't really know where you are going until you know where you have been.” The goal of this whole process is to make the conscious decision to start moving in a new direction with your vision for the future of the business. Your vision is based on creating an effective succession plan and starting your next chapter.
For further reading, we suggest you review our article, “Timing Is Everything: When Should I Start to Consider Selling My Business?”
Jared Burwell is the author of this article. He is the founder and director of Viros Group, a capital investment and financial management firm focused on business growth and succession planning. He has spent the last 20 years in public accounting with a primary focus on providing advisory services and financial oversight to a wide sector of small and medium-sized owner managed businesses.
