A business owner who wishes their business to continue for all stakeholders involved has many angles to consider when preparing a business succession. Getting it right the first time requires diligent planning, and carefully weighing value realization against how business succession relates to employees, customers, vendors, family and business partners.
Employees are the Engine and Culture of any Business
A business doesn’t exist without employees, and a business cannot thrive without leadership. Securing the future of your business for employees starts with envisioning who will step up into key management positions after you leave.
As you prepare to exit, the vital roles you satisfy as owner of your company today must be covered for tomorrow. Some responsibilities can be accounted for by creating processes and systems. Others can be handled by moving key employees up the organizational chart. But should unfilled roles remain after internal resources are exhausted, a hiring plan must be developed.
If employees have been identified as potential future owners, make sure that this path makes sense and aligns with the owner’s business succession goals.
Transitioning Customer and Vendor Relationships
All businesses require customers to exist, and most businesses rely on vendors to provide key supply chain products or services. A successful business succession plan must include clear guidelines for transitioning the customer and vendor relationships most vital to smooth business operations and cash flow. The more significant the relationship today, the more you must put a strategy in place for the relationship to continue into the future.
Beyond securing current customers and vendors for future partnerships, a smart succession plan involves the deployment of tactics for growing the business via other avenues. This approach minimizes risk to the new owner, which in turn drives up the value of the business.
Family as Part of Business Succession Planning
Considering one or more family members for taking over your business is three-fold. First, you must have family members who truly want to work in the business. Second, interested parties must be capable of performing important roles as future leaders of the company. Finally, there must be sufficient available capital to allow for succession while also meeting the owner’s personal goals.
Multiple funding options and structures exist to facilitate family business succession in a variety of scenarios, but the desire and talent need to be there in order to make the transition of ownership work. In addition, family considerations will typically include the transfer of wealth to family members who will not be involved in future business operations.
Business Partners and Succession Planning
Business succession with partners can be straightforward and easy, or detailed and challenging. The first step is to analyze and understand all existing agreements relating to the rights to transfer ownership and buy or sell provisions for shareholders. Sometimes contracts will dictate the general direction of your exit, other times partners must hammer out a custom solution that works for everyone.
From percentage of ownership to age differences, wealth discrepancy, life goals and more, there are many variables to align – and the more partners there are, the more important successful alignment becomes for maintaining value and protecting the business.
Balancing Value Realization Goals with Legacy Planning
Both internal and external drivers dictate the appropriate timing for exiting your business and best realizing value. Example external drivers include industry life cycle, general economic conditions or taxation. Internal drivers often relate to contracts, growth plans, and who will take over ownership of the business.
The ideal paths for value realization and protecting legacy sometimes cross. A more likely scenario is one where the owner must make hard choices, to facilitate a business succession that maximizes value to the best extent that smooth continuation is made possible for all stakeholders.
The Importance of Developing a Written Business Succession Plan
Successful succession planning is not simply a thought exercise. To achieve the quality of life you desire while caring for the wellbeing of key business stakeholders, maximizing value and minimizing stress requires the creation of a written business succession plan.
The core of your plan should be to continue to run and maintain your successful business. Consider hiring an outside expert to document your options, increase value, and create multiple paths of succession opportunities so that you don’t go it alone. Just like any other business plan, you must work and update your succession plan continuously, even after it is built.
Take a deliberate approach by utilizing Quest’s Exploration services. We’ll provide multiple options to allow for a successful outcome.