It’s approaching year-end, which is the planning season at EWBC. As you prepare your fiscal year strategic plan, give attention to your exit or succession plan. When was the last time you thought about succession planning? Years ago? Never? It can be nerve-wracking to think about, especially if you are early in your entrepreneurship journey. There will come a day; however when you will retire from your business. Make succession planning part of your growth planning this year. Here are five tips to get you started.
It’s never too early to have a plan
Regardless of where you are on your entrepreneurship journey, our first tip is that it’s never too early to have a succession plan for your business. Handing off your business can take years, and often if you come upon a situation where you want to unload it faster, you’ll sacrifice things like quality or payout (or both). It’s good to have a general sense of what you’d like to ultimately do with your business when you face retirement or your next opportunity.
Typical options are:
- Selling or leaving to a family member
- Selling to a third-party buyer
- Selling to an employee, group of employees, or partner
- Liquidating business and assets
Your plan should include things like a timeline, succession options, external factors, potential successor or buyer candidates, business valuation details, and key next steps. You shouldn’t wait
until you are ready to unload your business to get started on this; this planning should be an addendum of your overall strategic plan, even if it’s one that you keep private for the time being.
Know your value
Performing a business valuation is the best way to know how much your business and its related assets are worth. In general, a business valuation is valid for up to a year. How close you are to exiting your business will help determine how often these should be performed. If you are a long way away, then these are not needed frequently. You can check in on the value every few years. If you are getting closer to leaving, within about 5 years, it’s worth it to perform them more often and make sure that you’re aligned with your growth goals to maximize profits at the end.
There are a variety of methods to determine the value of your business with pros and cons for each, and a business coach or finance coach would be a helpful partner to help navigate the process. There are also some valuable tools and templates online, many of them free, that can give you a sense of what’s needed. This step need not be elaborate until your exit is on the near horizon. Until then, an analysis as simple as benchmarking your organizations against publicly traded companies will keep your fingers on your pulse.
Prepare your successor
If you are planning to leave your business to a successor, it’s best to start preparing for this as soon as possible. Set up opportunities for professional development, including any relevant classes or certifications that might be helpful, cross-training, and shadowing. Be open about this selection with the individual(s) and ensure that everyone is on the same page. Let them know that you have this in mind for them, but that things can change at any time; avoid making promises too early in the process. It’s also beneficial to give this employee trial runs, such as while you are on vacation. This is a great way to see how he or she will handle the real thing and allow time for productive feedback.
If you plan to sell your business to a third party, it can be helpful to do a little research and put feelers out there for connections to buyers in your industry. It’s good to have a list of options on hand for when the time comes, and they may be able to give you a sense of what they look for in a potential purchase.
Your succession plan should be flexible and adaptable, as factors can evolve over the years or even suddenly. Tax law can change, potential successors can leave the company or change their minds about involvement, your business value can increase or decrease, and economic impacts can require changes to your timeline. Plan to revisit your succession plan at least every 3-5
years. We strongly recommend; however, that you update your valuations annually as part of your overall growth planning. Bake these annual planning sessions into your general timeline and highlight some related key next steps for the year ahead as part of your long-term goals.
Partner with an advisor
It is helpful to partner with a succession advisor like a business coach to help with your plan and the process. Licensed business coaches have helped many leaders go down this path and can provide valuable and unbiased guidance. A coach will help you to evaluate potential successors and buyers, perform a business valuation, build out your plan, and ensure that all your bases are covered. Personal friends, colleagues, and family can sometimes have an underlying agenda or stake in the game, so it’s essential to also have an impartial source for direction and counseling from someone experienced in the process.
Handing off your life’s work shouldn’t be taken lightly and by starting the planning now you can ensure that you are on track to earn the value you deserve, and if desired, keep your company thriving for years to come. Contact us if you are interested in some additional succession planning support from a licensed business coach; we offer a complimentary coaching session for business owners from a licensed business coach at Eagles’ Wings Business Coaching.