Succession Planning For Small Businesses
By: Michael Wall - June 27, 2018
For decades, great companies have dedicated extensive resources to legacy planning. They have teams, systems, and processes that help them plan for the long-term viability of their organization by ensuring they have the right people in the right place at the right time. Another term for this type of legacy planning is “succession planning,” and it is no longer the sole purview of large, international companies; it is an increasingly critical consideration for small business owners.
As baby boomers retire at a rate of 10,000 every day, many are faced with the daunting challenge of what to do with their businesses. They have spent countless hours building a brand and loyal customer base, have learned from mistakes and persevered when others gave up. Their businesses are, in many ways, an extension of their hopes and dreams, and they mean as much to them as family. Moving into a new phase of life (i.e., retirement) is not only a foreign concept, but it can also be scary.
Faced with this milestone, some decide to sell their business and look for someone to give them what they know it is worth. Others have identified someone (perhaps a family member or long-term employee) whom they trust to lead the business into the future. Many others are unsure of what to do – they don’t know how to sell, and they never had the luxury of having someone “at the ready” to take over.
There are five important steps small-business owners should take to help make the most out of the next phase of their lives when looking to transition out of their business. Each step can help meet both the practical needs associated with the business as well as the emotional needs of ensuring the legacy that has taken so long to build continues in a meaningful way.
Step 1: Determine your priority.
Taking the time to determine your goals is imperative. Are you looking to step away from the business entirely? If so, how soon? Would you consider a phased transition that keeps you involved for a period of time? What do your customers want and need? How do you want to support them, and what expectations do you have for their future relationship with your business? Answering these questions can help you build the foundation of your transition strategy.
It is also important to be intentional about what you will do after transitioning. What goals do you have for yourself? How do you want to spend your time? Making a list of these priorities will help you set the stage for a meaningful and fulfilled retirement.
Step 2: Review your current structure and future needs.
No one knows your business, market, and customers better than you do. That is both a blessing and a curse: It is a blessing because this knowledge can help you know what is needed going forward, and it is a curse because it takes work to transfer this knowledge to others in a way that will help sustain success into the future.
Consider the current structure of your business. Does it make sense to keep it the way it is? Perhaps dividing up responsibilities between more people will help win new customers and share the workload more effectively. Maybe you have reached the place where a board can help make strategic decisions and drive future business initiatives.
Think about what it takes to run your business. You likely haven’t thought much about this because you have been doing it for so long, but if you were to design the perfect successor, what knowledge, skills, and abilities would they have? What kind of leader do they need to be? Which attributes are necessary to meet the changes happening in your industry? While it is likely you will struggle to find a successor who fits everything you are looking for, defining this up front can make all the difference.
Step 3: Build a plan.
A solid plan for transitioning your business includes both financial and personnel considerations. Financially, you will want to ensure the terms and conditions are clearly defined and supportive of your transition strategy. If you are lucky enough to have someone who can buy your business outright, make sure your valuation is accurate and you get everything you deserve. If, however, your successor does not have the financial means for an immediate buyout, you will need to develop a creative transition plan. The good news is that there are many ways to do this.
On a personnel side, you want to consider how outside resources can support your new successor. This may be most appropriate when structuring a transition to a family member or long-term employee. A board of directors can help with decision-making and can be structured for short- and long-term support. You may also consider a coach or mentor who has experience in areas critically important for success moving forward.
Step 4: Work the plan.
One of the hardest things about transitioning is letting go. You have been so close to your business for so long that it can be difficult to see someone else take the helm. This is especially challenging if your financial terms require a transition period, or if a family member is now leading the business. This is the time to trust the work you have done to develop your transition strategy.
Trust your plan and know your successor will not be exactly like you. They will be their own person and develop their own path. Remember, you had to learn things along the way, and so do they. That learning process is critically important to their development and the evolution of the business.
Step 5: Live life!
Enjoy the fruits of your labor! Give back to your community, church, and loved ones. Follow through on the plans you developed in Step 1. Remember, your time is the most precious thing you can give others, and now that you have a plan in place, you have more of it to give.
Succession planning has been a focus of big business for a long time. It is executed to ensure long-term viability and provide added peace of mind. Small businesses need these same things, and you can achieve them with focused attention and strong planning. Be encouraged! If you follow these five steps, you will be on track toward building a strong transition plan that makes sense and helps ensure your legacy, and the legacy of your business continues.
Article Source: Forbes
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