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Business Succession
We talk a lot about business success, but what about business succession?
One aspect that repeatedly comes up in our work with clients is the aspect of business succession. Most of our clients look forward to the day when they can let the business look after itself, whether that means they sell it to someone else and walk away with the nest egg, or they just hand over responsibility for running it to someone else, confident in the knowledge that the business is in good hands and their income and nest egg is secure.
If you are just getting started with your business you may have not put much thought into how you will finish. Perhaps you have been in the business for some time and still haven't thought much about how you will leave your business. In fact, statistics show that very few people put sufficient time into planning their exit from business. This is despite the fact that everyone will exit their business at some time.
Wouldn't it be better to exit your business in a planned way where you can leave on the most favourable terms than to either feel trapped in a business that you can't leave or have to leave in less than ideal circumstances?
When should you start planning your exit and succession? If you subscribe to the Stephen Covey concept of "begin with the end in mind," you should start planning your exit before you even start your first day in your business.
Succession planning is something that has the potential to make your life so much easier, if not financially better off as well, that it should not be something you leave until you start to think you may be ready to exit your business. By then, it may be too late to make vital changes that could have been put in place early to give you a better end result.
Let's first take a look at the common problems caused by a lack of succession planning and then we'll look at the advantages you can gain from doing succession planning earlier rather than later. With no succession planning you are most likely to experience the following issues:
- You fail to groom your successor, so often feel trapped in the business with no easy way out.
- Because there is a lack of leadership below you, people have no choice but to come to you when important decisions need to be made - in other words, the business remains totally dependent on you and you suffer stress as a result.
- Because the business is dependent on you, you can rarely take time off for a proper vacation and even if you do get away, you can't stop thinking about how the business is surviving without you - even more stress results.
- Because the business is dependent on you, you lower the value of the business if you intend to leave. Any sale will result in a lower selling price and most likely you will be asked to commit to a period where you have to work in the business on a salary while you train the new manager. You will not be able to make a clean break and will find it difficult to work when you would rather be somewhere else - another stressful situation.
If you value your financial and physical health, it makes a lot of sense to work on succession planning as soon as you can. In the most successful businesses, one of the most important tasks managers are given is to start training their successor as soon as possible. Succession planning provides the following benefits:
- You commence training your successor very early, which means you always have someone else available who can do your job.
- Because you are free to leave your job to someone else, you can focus on more important strategic issues rather than being bogged down by urgent day to day tasks. Therefore you can be more effective.
- You can take a holiday any time you like, because you know the business can run without you. Your lack of stress and ability to get away and relax is very stimulating and allows you to come up with many ideas that will improve the business.
- The business has a value in its own right and is not dependent on your availability. This means you have choices. You can sell the business any time you like or you can continue to own it with someone else running it while you continue to pick up your salary without having to work.
- Because the business is a walk-in-walk-out operation it has a higher value so it will sell for higher price and will be easier to sell.
- Because the future of your business is planned and totally under control, you not only make more money as a result, but your life is so much more free of stress, giving you the chance to actually enjoy the fruits of your hard work when you decide to exit your business.
So which scenario do you prefer? It is up to you when you start to worry about succession planning. However, the proof is evident.
If you start to work on succession planning sooner rather than later, you have a much greater chance of financial success through better business performance, better health through less stress, better relationships due to less stress and the ability to sell your business at a higher price when you decide to leave. What are you going to do?
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