Why Succession Planning?
You’re 28 years old with a booming business. You love it. Never want to leave. Who needs a succession plan?
You do, absolutely. The first thing we teach in an Entrepreneurship Course is to include an exit plan with your initial business plan and update it regularly. Working with the Small Business Development Center for over 30 years, we see businesses when they are ready to retire. In many cases, it happens quick. Owners are tired, ready to throw in the towel. They expended so much energy into the business for years and now the energy reserves are exhausted and they just want out! A very difficult predicament when you think that 64% of older business owners (over 50) have no formal succession plan. Why do so many owners fail to think about the future of their businesses? They would make a healthier profit from selling a business with a well thought out growth and exit plan. Instead, they leave – sometimes not selling but abandoning the business or selling it at a fraction of what it was worth. An online Harris Poll survey among 502 U.S. business owners with fewer than 300 employees revealed that:
-47% of those businesses without a succession plan believed the plan is not necessary.
-14% did not want to give up their life’s work
-11% did not know when to create a plan
-11% did not know whom to work with
-11% did not have time to develop a plan
- 8% were overwhelmed with government regulations
The major benefit of constructing the exit plan will go to the owner, because it will maximize the value of the business. If you want to sell your business as a healthy viable operation with growth potential, it takes effort and focus to do so. The major benefactor will be the owner(s). It is very difficult to watch owners short change themselves because they ran out of steam instead of working to keep the business viable until they sell it.
Please let me know that you read this article and that it helped you to do some of the following steps for better profitability. It will help to offset the sadness I have seen from weary entrepreneurs that short changed themselves.
1. Search your company or similar ones for a potential successor. This can happen ten years before selling. Many changes can occur but this will help organize the occurrence.
2. Train the person so they can see potential errors that can occur. Your experience can save the next owner much time and money. Diplomacy is key.
3. Set a schedule of how and when control will be shifted to your successor. Try to understand different ways that people think through a decision. You can discuss pros and cons to each. Keeping an open mind as well as offering helpful tips is an important part of the process.
4. Plan your own exit. Knowing what you will do next will help you let go of the items you have been doing.
5. Execute the plan. It may not go exactly as you forecasted but it will be a marked improvement over ignoring it.
If you have questions, talk to your business professionals - an attorney, accountant and/or your SBDC Advisor. They all have various resources to help you through this process. Remember why you are doing it - for a healthier profit.
For additional insights, see www.sunyjcc.edu/smallbusinessacademy for video discussions from local entrepreneurs on successful exit plans.