Successfully Transitioning Your Business  

 

7 Keys to Succession Planning for Your Business

 

We’ve all seen examples of succession planning done well and succession planning gone wrong. Some companies move smoothly through the process, emerging with strong financial performance, a solid management team, and great growth potential. Others struggle, leading to depressed financials and, in extreme cases, business closure.

 

While a smooth transition of ownership is never guaranteed, developing a succession plan using these seven keys increases the likelihood of things going well:

 

#1: Start Succession Planning Early

 

Of all the succession planning advice you receive, this one is the most important: start succession planning early. Don’t wait until you’re ready to retire or a health issue emerges. All businesses should have a written succession plan in place that they periodically review and update.

 

By some estimates, you’ll need two to five years to implement your succession plan. So the time to start planning is now.

 

#2: Write Down Your Succession Plan

 

Ask some business owners if they have a business succession plan, and they’ll say yes. Ask to see it and they’ll say, “It’s all up here,” pointing to their heads. Unfortunately, “in my head” succession plans won’t help much if the business owner is incapacitated.

 

#3: Communicate With All Stakeholders

 

When you implement your succession plan, communicate regularly with all stakeholders, including employees, customers or suppliers. In the absence of real information, misinformation will fill the void.

 

#4: Identify the Value of Your Business and Take Steps to Improve it

 

Selling your business is no time to take your foot off the gas. During transition, it’s more important than ever to increase the value of your business by improving business value drivers >>.

 

#5: Understand Your Own Financial Needs

 

Succession planning is usually prompted by an owners’ desire to retire or move into another business. Both of these activities require cash. Understand your after-tax cash flow needs so you can confidently sell your business and achieve your goals.

 

#6: Don’t Assume an All-Cash Deal

 

When planning your business sale, don’t assume the new buyer will come forward with an all-cash deal. All-cash deals are the exception, not the rule. More likely, you'll be offered a complex arrangement of seller financing, earnouts, and holdback arrangements.

 

#7: Invite Multiple Offers

 

Many business owners don’t actively seek offers but wait for offers to come to them. As a result, they end up considering each offer in isolation. This not only takes considerable time and resources, it rarely results in the highest possible business sell price.

 

Instead, use your succession plan to simultaneously offer your business to multiple buyers. Just like selling a home, selling a business this way will generate more interest and better offers.

 

We know the importance of privacy when selling your business. Contact a Smart Exit business broker to speak directly—in strictest confidence—about your business succession challenges. Contact us >>

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