Succession & Exit
Strategies
The future influences the present just as much as the past
When most owners and advisors hear the term “Exit Planning,” they think about the actual ownership transfer process. They believe that the first Exit Planning step is to hire an investment banker to sell the business, or a CPA and lawyer to draft a sale agreement between themselves and their key employees or children.
These are certainly important steps in the Exit Planning Process, but far from the first ones. In fact, transferring ownership control is usually the last step in the implementation of an Exit Plan and usually occurs after years of planning and plan execution. In fact, the typical Exit Plan takes 3-5+ years to implement in order to attain the owner’s exit goals.
Analysis of the Situation
An effective succession plan requires the analysis of the current and future situation, not only of the business but also the individual owners.
Enhance Value Upon Sale
Strategic exit planning enhances the realization of value upon sale, dissolution, or succession, crucial for preserving accumulated wealth.
Systems Dependency = Value
A business that runs on systems reducing owner reliance, is intrinsically more valuable than one that places a significant operational reliance on owners.
Things to Ponder When Thinking About Succession
A random selection of the ever-increasing media articles concerning succession would suggest up to 70% of small, particularly family-owned businesses in the US will be looking to change ownership in the next 5 to 10 years. This is a result of the “Baby Boomer” generation of business owners looking to retire in that period, all of whom will be seeking successors for their business ownership.
IMPORTANT QUESTIONS:
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Had you always considered that the sale of your business would fund your retirement?
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Have you identified a successor?
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Will this person come from within the business or will you be looking to sell on the open market?
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Do you know all of the exit options that are available to you?
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Are you leading by example in balancing your work and business life?
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A key concern that is sometimes overlooked when considering succession is the impact that the change in ownership will have on customers. Have you taken this into consideration?
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Do you regularly compare your business performance with that of competitors?
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Can you use this information to grow your business and provide a competitive advantage to potential successors?
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Will you also potentially be competing for successors in the same market?
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Are you at risk of disgruntled staff leaving and establishing their own business in competition if your succession plan is not handled properly?
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Do you keep up to date with technological changes or improvements available to assist the way you do business?
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Is your business disadvantaged because of competitors being able to offer goods or services in either a more efficient or cost-effective way as a result of them embracing new technologies?
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Have you addressed all the items that drive the value of your business, these may not take considerable effort but may have a significant impact on the business sale price?
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How does your business currently measure the service you are currently providing customers? Have you ever undertaken a customer survey to report on feedback directly from the customers?
Build a business that will allow a future successor to work “on the business” rather than “in the business” as an operation that is strategically focused and systemized will be more attractive.