If you’re like many business owners, you probably think there is plenty of time to plan your transition. After all, you may have years — or even decades — until retirement, and there’s no need to be thinking now about something so far ahead in the future.
Or you may be one of the many baby boomers nearing an earlier retirement and wondering whether you have done what is necessary to transition the business. Regardless of your age and the stage of your businesses, failing to have a transition plan in place could be a fatal mistake for the future of your family or your business.
Smart Business spoke with Michael Pappas, CPA, a Director at Barnes Wendling CPAs, about some of the most important things to keep in mind when it comes to succession planning.
The best place to start
If you build a great business, transitioning it is easy. The problem is many entrepreneurs get caught up thinking about transitioning their business with one dimension in mind. One-dimensional thinking can lead you down the wrong path because you are too fixated on one direction. If that direction fails, you are forced to start over again.
Regardless of where you are in your succession plan, you can always benefit from an assessment of your business’s current condition.
What are the best attributes to create the most value for your business?
■ A business that replicates profitability year in and year out, even without you.
■ An executive leadership group that is team-oriented, competent and focused with a ‘we all win, or we all lose’ attitude.
■ Continuous education and training programs at all levels.
■ Hiring the best people at all times.
■ A highly-diversified customer base.
■ Employee evaluation systems to help each team member improve to achieve their highest and best use.
■ Hiring the best people with the skill sets necessary to achieve team-oriented objectives.
■ Well-documented systems with training programs to ensure customer satisfaction is always at the highest level.
■ An incentive system to recognize and reward those accomplishing the above.
Always work on your business
As an entrepreneur, your challenge is to not get caught up in the day-to-day activities of your business. Your time is best spent focusing on high-level strategies to achieve growth and improve profitability. A great leader trains and mentors staff and then delegates responsibilities.
Your people will make mistakes, which allows them to learn and grow. Avoiding mistakes is only possible if you are involved in every decision. But you provide the greatest value when you have time to work on advancing your business.
In order to fulfill all the needs of building a great business, you need to surround yourself with great people. Every great leader makes decisions after gathering input from as many sources as possible. Once your team is assembled, what is the next step? Define your plan, commit it to writing, delegate authority and execute it. Then, follow up with scheduled accountability and make adjustments as needed.
Develop a succession plan
Now that you are on the path to building a great business, here is what you need to do to build a strong succession plan:
■ Evaluate your options: Assess the ability and desire of family members.
■ Appraise key management personnel.
■ Consider the merits of an Employee Stock Ownership Plan (ESOP).
■ Study potential third-party external buyers. Look at strategic and financial buyers, as well as private equity groups.
Always be prepared for the unexpected
With every option, there are a variety of strategies to accomplish each. Some take longer than others. Be open minded and always have a plan A and a plan B. As an owner, your desire may be to pass on the business to a family member. But unless you’ve confirmed the family member is on board, they may have other plans that do not include the business.
When you consider such uncertainties, building a great business is even more crucial to providing you with the greatest flexibility to succeed and to maximize its value. ●
Insights Accounting is brought to you by Barnes Wendling CPAs