The best time to start thinking about your “exit strategy”, or succession plan, is before starting your business. If you haven’t started to think about your exit, then the next best time is, now!
Exit strategies come in various formats. One of the most popular strategies is the aforementioned succession plan, which is when a business owner allows for a family member or key employee to take over the business. The second option is to sale the business to a third party, and the last remaining option is to wind up the business, essentially ceasing operations.
Regardless of what option you wish to pursue as a business owner, your “exit strategy” will help guide you towards maximizing the value of your business.
It’s important to keep in mind that each option will have different tax results. Having a family member take over the business will be different than having a key member of your team take it over, and selling to a third party will have different outcomes as well.
The primary motivation behind succession planning is to build value in your business. Succession planning is an underutilized method creating worth. It doesn’t have to mean more cash or more capital. If a potential investor or buyer were to evaluate the business, they’re going to look at more than just incomes, expenses, and a bank account.
Valuations & Shortcomings
As a business owner, you have to be capable of maximizing your valuation beyond just earnings. The only way to do that is by figuring out what the current value of your business is and that’s the first step of succession planning is.
The process will help leaders know the current value of their business, and once the leaders can take a stand back from the business, succession planning will also begin to highlight shortcomings. It’s also something we can help you with, and often, our ability to be a third-party can help pinpoint inadequacies.
Once you know what’s holding your business back, you can begin planning to overcome those shortcomings. That’s a part of succession planning that can be done before there are any departures, and it’s also something that could be a quick, easy fix, or something that could take months, even years to overcome.
By this point, the succession plan already coming along, even though technically there hasn’t been anything put into place. Although this process will build value for your business in the long-term, it’s important not to forget about the ‘now.’
Too often, business owners jump into a succession plan and don’t think about the effects it could have on their business at the time. Changes are often tricky, so it’s essential to remember you should be preserving as much worth as possible. Make sure that the succession plan won’t negatively affect how you’re doing business today, which can be just as challenging.
Establish a Starting Point
Often, figuring out where to start will manifest organically, but that can depend on a variety of factors, and because there can be many moving pieces, there’s a lot to consider.
Working with us, your support team and your leadership think about the most straightforward starting point and stick to it. It could mean shuffling leadership or management roles, creating better standards of procedures, and altering strategies for customers. These are typically the foundations of business and will likely be where you need to begin.
Develop Future Leaders
Developing future leaders is paramount, especially when you consider that the end goal of succession does usually mean you as the business owner can step away and start depending on others to handle the business.
Developing those leaders has a ripple effect to it too since it’s inevitable that there will be turnover. You want to make sure the people that are being left to handle the business can head recruitment, training, and retention.
Cementing a Legacy
The hope is, as a business owner, you can eventually leave a business, and your legacy permeates throughout the business enough that your family can benefit from it for years to come, even perhaps for generations to come.
That’s where a succession plan can deviate. For some business owners that means selling the business, for others, it means finding someone within the family or the business or wants to carry on your legacy.
From beginning to end, the most important aspect of succession planning is communication. As mentioned earlier, succession planning can have a negative stigma, and communicating with your family and staff can help alleviate any uneasiness.
The greatest thing about a succession plan is that it can always be altered and revisited to ensure everything is working towards an end goal of not having to work anymore. For some people that can be a scary thought and there’s nothing wrong with that. As a business owner, you’ll eventually know when the time comes.
When you are ready for it, we will help shine some light and be your partner for your financial success.