Every business owner has a big dream for their company and wants to make it happen. Yet in many businesses, too little of that work goes into determining who will take over when the founder leaves the stage.
Only one in four private companies say they have a formal succession plan in place. Many CEOs are too caught up in the challenges of the present and fail to do the work of succession planning. Working without a succession plan can invite disruption, uncertainty, and conflict. For companies that are family-owned, the issue of succession introduces deeply emotional issues and may widen the circle of stakeholders to non-family members. I have several clients working through these issues right now.
Take John for example. John made it through the Great Recession of 2009, barely. His company lost money in 2009, but was able to cut expenses, increase revenue, and became profitable the following year. We started working with him on strategies to increase revenue and eliminate mistakes in his sales cycle and shorten cycle times. He has successfully tripled his revenue in the past 10 years and increased his net profit by 400% in the past 5 years. Growth always requires cash and increases complexity. He had the foresight to bring on 3 key people to manage the sales, marketing, and operations areas of his business. He has done a great job of creating value for all stakeholders.
Now the focus is turning to succession planning. Interesting fact, only 30% of businesses survive to the second generation, 12% to the third generation, and 3% to the fourth. Why? Because succession planning is a complex process that draws upon many business disciplines.
The first order of business for many business owners is to ensure the long-term success of the business. My client, John, has certainly done that. However, equally important is the preservation of wealth, gift tax, retirement, insurance, and investment planning. Enter the CPA, attorney, and wealth advisor.
The shareholders must determine how to monetize the value of the business to include compensation planning and the stock transfer technique. Finally, a business broker or M&A advisor must work through issues to maximize the value of the business. A business strategy and talent management assessment, current business valuation, and retirement planning are critically important for the shareholders just to name a few.
So, how about you? Have you done the hard work of succession planning or do you feel like it will just work itself out naturally in the end? For some, they are aware of the task’s complexity and find it overwhelming. Don’t get stuck there please. It breaks my heart to see successful business owners that have worked hard in their business sell it for less than what they could’ve received.
Build a team of people (business coach, CPA, attorney, wealth advisor, business valuation advisor, and M&A advisor) to break this complex process into simple bites over time to realize the successful exit of your dreams.
P.S. If you’d like to talk about this further, schedule a call with me today for a free consult on how to get started.
