One of the most challenging events in a business owner’s life is business succession. Whether it is a transition to family member(s), or a sale to a private equity firm, it takes intense planning and time to execute a successful succession strategy. Get the planning started by asking four tough questions.
What does success look like for me?
When the time comes to exiting a business, many owners feel “stuck” in their business, typically because they have not been able to execute a succession plan that works for them. That can be the result of not having an executable plan, being unrealistic about the value of the business, unanticipated circumstances, or just plain bad luck. Most often it is the result of not investing the time to develop a plan that works well for the owner.
It is hard to move away from the inertia of daily demands to begin the succession planning process.
Start Small. What does success look like? To begin, devote a couple of uninterrupted hours, or maybe a few of those sessions over a month or so. If you are like most business owners, you likely have thoughts you have been pondering for some time. This is your opportunity to focus on those thoughts to start to mold what success looks like for you.
Does your definition of success include?
- Monetary payments?
- A successful knowledge transition of the way your machines are built?
- A successful knowledge transition of your distribution methods?
- A successful knowledge transition of the company’s supply chain?
- Superior relationships with your customers and suppliers?
Likely, it includes all elements listed above.
Now is the time to get others involved in order to further craft and execute the plan. There are many complexities to be addressed in the process which we will not expand on here. By defining what success looks like to your unique circumstances, you are better equipped to guide the process as the ideas are now out of your head and going into motion.
How will they ever replace me?
Most business owners feel it is very difficult to replace their skills, and contributions to their business, and they would be right. However; think about your goals outlined above, and let that motivate you to get rolling on teaching others what you know. One of the greatest professional gifts that I have received is the lesson “if you do not train people to do what you currently do, you will never move up” which I believe applies well to a successful business succession. Replacing your skills is optional, and those who can do it successfully have a much greater opportunity for a smoother internal transition or external sale of the business.
Potential buyers will always be concerned with what talents remain with the business they are looking to acquire. After all, those talents likely impact future cash flows, and that is what drives what they are willing to pay. It also affects their risk level, which not only affects value, but may ultimately be a driving factor in their decision to purchase the business. Transitioning your talents so that your star employees stay with the company increases the likelihood you will be able to sell your business in any market and at a greater price no matter what the market conditions.
Knowledge transfer can be difficult and time consuming. This will be a key component to any plan and will likely have a long execution timeline.
When should I start the process?
The age-old question, “When is the best time to plant a tree?” holds true with succession. Of course, starting twenty years ago would be of great advantage but if you are like most business owners, that line might be a few years or more in the rearview mirror. As with the tree, the next best time is today, so let’s get going!
Given the complexities of the process and consequences of the risk of failure, it is best to start this five to seven years before the anticipated transition. Star employees need time to learn the manufacturing and distribution processes in order to be successful when the succession occurs. Yes, it is possible to deal with a slightly shorter timeframe but why put yourself in that box with little or no wiggle room? The earlier you start, the more ground you can cover and setbacks you can recover from, and still meet your goals.
For most, this is the one and only time they will go through the succession process. Enlisting those you trust, and have experience with the process, can greatly increase the probability of your success. What they know about you, your business, and the process can prove invaluable in going from “what should I do?” to achieving success.
This may be the most important plan you ever develop and execute. By taking the time to develop the plan, and execute it, will provide you with increased “peace of mind” that the business you worked so hard to build will continue serving your customers well into the future.
Working through these questions will help you get started on your way to success. At Maner Costerisan, we understand the complex challenges of the manufacturing industry and are experienced in helping business owners develop succession plans. We help our clients through the process while offering the advisory tools necessary to achieve their goals. We can help.
