Succession

ABOUT HALF OF ALL BUSINESS transitions take place as a result of unexpected events, forcing decisions driven by circumstances — stuff that happens to us, sometimes rather suddenly! — rather than legacy vision and goals. Business owners should ask: “How can we be ready for the unexpected?”

Consider the importance of building a comprehensive transition plan.

How important is it that you have a plan in place to deal with contingencies? What might happen if you don’t plan ahead? What happens if you’re not ready for what life throws at you?

What could happen?

Think ahead about what is most likely to happen, but also what could happen, even if it feels unlikely or uncomfortable, across the next three to five years. Think beyond the short-term and contemplate what circumstances might be like in a decade or more.

Consider essential factors like your age, now and what it will be then, and what might be important to you in the future that might not be now. Think about possible changes to your family dynamics, the rise of new generational dynamics, technology changes, shifting market dynamics, and how those and other factors will affect you and your business.

Tips for contingency planning:

• Build your transition plan to prepare for different scenarios.
• Always have a “Plan B”
• Make this part of your company’s annual strategic planning routine.

Five “Ds” that disrupt your business

Nobody wants to think about the “Five Ds.” But the five unexpected life events identified by exit planning expert Peter Christman are common and they can reduce your enterprise value and derail your plans.

Divorce, death, disability, departure or disagreement might not just affect you, but your employees, as well.

The threat of unexpected circumstances calls us to plan ahead. Acknowledging the possibility of the five “Ds” will help you think through what to put in place for the scenarios you hope will never happen. Doing so builds resiliency into your transition plan.

Could your business survive the loss of a key employee?

What could happen if you lost one of your key employees? An even better question: how deep is the “bench strength” on your team? How might you improve in this area and how will that affect the value of your business?

Consider the key roles and functions within your business. Are there documented processes to follow in order for your company to function properly if any employee was suddenly unavailable? Not only will solid documentation protect your company against the loss of a key employee, it may increase the value of your company in the eyes of a potential buyer — now or down the road.

Or a personal family loss?

What if you suddenly lost a family member? What if you lost someone close to you, like a child or a spouse? This really hits home for our team. Our founder and CEO, Michelle Bonahoom, endured the sudden loss of her husband last fall, to a tragic heart attack. Michelle has helped dozens of business owners prepare for critical transitions and has been teaching on preparing for unexpected circumstances for many years. Going through this herself has given her a very personal perspective, and a deep passion for the discipline of preparation and contingency planning.

Three dimensions of a solid transition plan

Transition planning incorporates three critical dimensions. Ask yourself:

1. Legacy plan“What do I really want for my personal legacy? What is most important to me?”
   One facet of legacy is the brand you’ve built, your company reputation, the community or communities your business is located in, your employees, your product line(s) and how your customers are impacted, or other qualitative aspects of your company that may be important to you, to endure into the future. Another facet is what do you want your “life after business” to look like?
2. Succession plan
   “Who will be my business successors? When and how will they be ready to lead my company?”
   Your company will require a next generation of leadership. Who do you see taking over? What kind of development do you need to invest in the next generation team? How prepared are your successors to manage the business? Can they lead your company to the next level? Is there someone with the visionary capacity to lead your company into the future? Good managers can be so focused on administration and maintenance that they miss the strategic thinking and vision to keep the company energized. Do you need to continue to play a mentorship role to transfer your vision adequately?
3. Wealth plan“What kind of personal income do I need to maintain from my business or achieve from a transaction upfront versus over time? What matters to me in terms of setting aside wealth for my heirs or in terms of impact investing or charitable giving?”Plan in advance for how any type of transition you may face (or that you intentionally go for) will impact your personal income and therefore your accumulation of wealth. There are many ways to structure a transaction if you decide to sell your business or if you decide to acquire someone else’s business. There are various financial instruments to consider that can be part of your wealth plan. A thorough planning and review process, with the right experts who have experience with the type of transition you are planning for, is critical.

This three-dimensional plan will guide you in the process of preparing for the critical transitions that are sure to come — those you plan for, and those that just happen, like it or not!

An advisory team can help with your goals

Bring together a Transition Advisory Team you can trust to collectively walk beside you, working together to protect your interests and ready you, your family and your company for a variety of transitions, whether planned or unexpected. This team should consider and mitigate risk while maximizing enterprise value. You probably have people you have come to rely on, such as a CPA or attorney you trust. Include them on your team if – and only if – they are willing to work together with other advisors who may have specific expertise needed for the different aspects of business transition.

Execute your transition plan step by step. Your Transition Advisory Team will need a leader who can coordinate and facilitate this work.

It’s never too soon to begin your transition planning process. High performing organizations include transition planning into their annual strategic planning routine. Forward thinking owners start succession planning at least three years in advance of an exit timeframe – and even 10 years in advance of a family succession.

Preparation begins with the right conversation. Who should you be in conversation with?