It’s Not All About the Kids
There is a misconception among many business people that succession planning is all about handing over our businesses to our kids. Why should I do that? I have built this thing up, why should I now just hand it over for them to wreck? If I did try and sell, it’s worth a lot more than people would be prepared to pay. Anyway, if I do get out of my business what am I going to do then? This is all I know, and besides my wife doesn’t want me at home all the time. We would drive each other mad.
Does any of these sound familiar? Business succession and exit planning is actually about combining the business, financial and personal goals of business owners to design and implement a strategic exit. Note there is no mention in there about handing it over to the kids or anyone else for that matter.
The key words here are combining business, financial and personal goals of business owners. Succession planning is about the business owner and their business. We need to know about the business as it stands now. What is its value? What are its strengths? What are its weaknesses? What can we do over time to build that value? We need to know about the owner’s personal financial position. What do we need to do to strengthen that position to allow them to transition smoothly to retirement or indeed the next stage of their lives? We are not necessarily just talking about older people moving towards retirement here.
Finally, we need to know about the business owners’ personal goals. This can sometimes be one of the most difficult hurdles to cross. What if you don’t know what they are? What if I have been working in this business for a long time and it’s all I know? Alternatively, this process could be extremely liberating. There may be lots of things that I want to do, but can’t because of the ties associated with running my current business. In both situations, it’s important to work through the issues, determine what your goals are and formulate a plan.
Once this is completed, we then combine the strategies for the business with our finances and our personal goals into a complete strategy. The key here of course is to allow enough time for this complete plan to be effectively implemented. That realistically means three to five years. We cannot effectively prepare a plan and implement it within six to twelve months. Where this is all the time we have, we are possibly going to be sacrificing business value in order to achieve an exit is such a short time frame. Often, business owners don’t consider exiting until they have really had enough or they have a significant health scare that prompts urgent action. It’s much better and easier to achieve a happy ending or transition if we plan ahead of time. One business owner said to me “the time to get out is probably when you love it the most”. Your business is more likely to be near the top of its game then, and we achieve a strategic exit rather than a quick forced sale.