What is Succession Planning?
Succession planning isn't just for those companies that have been around for 25 years.
Succession planning isn't about finding one of your siblings to sell your business to.
Succession planning is all about the exit.
Let’s say you started your company with that big
why, you found a few customers, you started hiring employees, you started investing in property and equipment, marketing, and now you have arrived. Succession planning takes many different paths and journeys. What's important with succession planning is that it is just like starting a business. You start with that big
why, and it is usually a good solid year to even come up with all of the components and the planning needed to start a business.
On the succession planning side, it does start with planning. You can’t wait twelve months before thinking of walking away from the business, you really should start your succession planning at least three years before.
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With that said, succession planning doesn't actually have to mean outright selling the business. You could have two or three key employees that you could ultimately transition and sell out of your position in your business over a ten year period. That's very common in service-based businesses. Now, businesses that are capital intensive, that takes a whole other type of exit. It still starts with good solid succession planning. At least three years before, start thinking about the type of personas that you're going to be selling to. It also requires you double down on certain foundational items in your business like bookkeeping and accounting, like a three-year to five-year plan.
Think about the
balance sheet. If you have too much debt on the balance sheet, debt tends to be an impediment to sell your business. You've got a ton of liens, you've got other stakeholders, it requires a different level of complexity when coming to planning and putting together an exit.
Top 3 Things to do Before Thinking of Selling Your Business:
- Good bookkeeping, good accounting, and understanding the fundamentals of the balance sheet are important.
- Secondly, just like any other business development where you're trying to sell something, you need to identify the segment in the market. Is it a good acquisition for your business?
- Never forget about your people on your bench, your employees, your
team. They're actually an intricate part of any succession plan, either direct or indirect, because you still have to retain them in order to make sure that they hang around when the deal gets done and the new owner comes in.
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