Forever Isn’t Really Forever

“They’re going to have to carry me out on a stretcher.” You wouldn’t believe the number of times I’ve heard this from business owners. And once they make a decision to never retire – or to retire at 75, 80 or beyond – they set it in stone.

Because they plan to stay in their business practically forever, these owners don’t do any planning.

But forever isn’t really forever. It’s only for their lifetimes. By refusing to plan for the inevitable, owners don’t put in place the structures that their spouses, children and employees will need when “forever” comes to pass.

Don’t get me wrong – I think it’s perfectly OK to choose to keep working until you’re in your mid-70s or even mid-80s, if you love what you do and your health allows.

You’d be in good company. According to the U.S. Small Business Administration, small business owners report that they plan to retire, on average, at age 72.6. That’s significantly longer than employees, who plan to retire at 68.4.

And just 11 percent plan to fully retire. In a Gallup poll, 40 percent of small-business owners say they will continue to work as long as their health allows them to do so, and another 47 percent say they plan to eventually cut back on their workloads but maintain their involvement in their businesses.

More power to them. But at the same time, that doesn’t mean they should put on hold any of the planning efforts it takes to get their companies and people ready for their eventual exit. Since most transition plans take three to five years, if not 10, to execute, planning ahead is the responsible way to govern the business that owners have devoted their lives to.

And you never know. Maybe the business climate will change and it’s just not fun anymore. Maybe your spouse will finally talk you into making time for travel. Maybe you will just get mentally tired and decide to move on. Laying the groundwork early gives you the flexibility to dive into the next adventure in your life.

7 Resources You Can’t Succession Plan Without!

Business owners and CEOs have come to rely on a team of people to guide their company to success – from vice presidents to administrative assistants, from consultants to subcontractors. Each of these resources has a different area of expertise they bring to the whole. When you’re thinking about exiting your business, it’s important to take the same kind of team approach by consulting a variety of professionals to help you prepare for and execute on your succession strategy.

Business valuation expert: This is one of the first professionals you should consult, five to 10 years before you’re anticipating your exit. They can estimate your business value and what it will take to get more money from the sale of your business.

Does a single client make up more than 15% of your revenue? Do you bring in the majority of business? Do you need to be ‘on call’ during your vacation to field questions and address issues? Answer no and your business value goes up!

Financial planner: Next, sit down with your wealth advisor to see whether the estimated value for your business can fund the retirement you’re dreaming of. If not, they can help you make adjustments to your spending patterns, your investment portfolio or point you back to your business valuation expert to  increase the value of your business.

Executive Coach for Succession:  The process of selling a business is tough. You need to build a strong management team that can run or grow the business, profitably and sustainably so you can fund your retirement. The process is fraught with uncertainty and stress, and it can get emotional really fast – for you, your buyer and your employees. This resource partners with you to develop your management team, help you navigate the emotional highs and lows and plan a rewarding exit and next phase of life. This is what we do at The Leadership & Legacy Group for our clients.

Certified public accountant: Selling a business has all kinds of tax implications. Your CPA will be able to help you figure out how to minimize your tax liability so that you can get more of your wealth from your business into your retirement account.

Estate planning attorney: This professional will help build the appropriate legal structures to minimize your personal tax liability after your death and protect your loved ones and other philanthropic organizations important to you.

Business attorney: You probably already have an attorney who helps you with legal decisions and concerns that arise when running your business, including stock purchase decisions, buy/sell agreements and more. If not, you should! But when it comes to succession planning, this is the person who will advise you on the legal aspects of a transfer of ownership and prepare the appropriate documents.

Funding sources: Research shows that in our post-recession economy, the majority of small business owners will need to finance the sale of their business themselves, as most buyers don’t have a wad of cash sitting in the bank ready to invest in your business, and they don’t have enough collateral to get a bank loan big enough to finance the purchase of a business. As a result, owners who really want to facilitate a sale would do well to investigate other potential funding sources including private equity firms or venture capitalists. The bonus for using funders such as these is that they provide money and expertise to ensure the business continues to be successful and profitable after it changes hands.

Insurance agent:  You can borrow against the value of a life insurance policy to fund the purchase of a business. Owners can purchase key man insurance, to ensure the stability of the business or its’ sale in the event of the owner’s unexpected death. Your agent can help you figure out how to leverage the resources best to accomplish your goals.

When is it time to start talking to these resources? At least 5 - 10 years before you’re ready to actually exit. Their guidance will give you a better understanding of the transition process so that when a buyer approaches you, you’re ready to jump on it, and when you are ready to seek a buyer, you have positioned yourself for a smoother and more profitable sale.

Most people wait too long to build their team and are unprepared to retire when it becomes desirable or necessary for them to do so. Others don’t have fallback plans in place when the economy tanks, the buyer walks away or other trouble arises.

To serve this growing demand for service, we’ve recently launched a Succession Planning Roundtable as a subgroup of the award winning Society of Financial Services chapter. We bring together local experts in all of these professions to discuss the challenges we see in our individual areas of focus, and to share ideas and perspectives that can benefit the clients we serve.

If you want to learn more about these experts, or have a particular need, please call or email me for a confidential conversation about your situation. We’ll decide who might serve you best and I’ll make an introduction on your behalf. I’d be delighted to do that!

Contact Abby Donnelly, The Leadership & Legacy Group at 336.458.9939 or email Abby@leadershiplegacygroup.com. We look forward to hearing from you!

What’s your Plan B?

The best laid plans often go awry. I expect that most business leaders have experienced this truth at one time or another during their careers, and the adage is true for succession planning, as well. Just ask Bill Gross, the chairman and co-founder of the respected Pimco Bond Funds. In February, his deputy and expected successor quit the company, leaving its present and future in shambles.

Gross tried to do everything right by putting a succession plan in place, but now, at 69 years old, he has no plan at all.

His tale highlights the necessity of having a Plan B.

It takes both A and B

I spend my days convincing business owners that they need to develop exit strategies and succession plans and developing their leaders to run the business profitably and sustainably. But as owners are coming up with their primary plans, they should also develop backup plans for how to address the worst-case scenario in case the intended successors cannot or do not take over.

You can do this by developing bench strength in all of your key positions. Your primary goal is to identify the one or two people you think would be the most effective at running your business, then develop them over three to five years to prepare them for these potential roles. You also should identify two or three backups at each position to develop for possible, and hopefully eventual, leadership roles in your company. They may or may not know they’re being groomed as future executives.

The best sports teams invest in bench strength. They do not have a single player who can play quarterback. They have a bench of two or three and are always growing the skills of each member of their team.

If your transition occurs as planned, your strong bench will be critically important to supporting the new management team. And as your business continues to grow under the new leaders, growth opportunities will continue to arise for these next set of high-potential leaders.

But if your planned transition falls apart – if your identified successor decides they don’t want the job or you decide they haven’t developed the necessary skills – you now have a stable of prospective leaders whom you have been cultivating all along.

By working simultaneously on plans A and B, your risk is cut in half. While you can’t cover every conceivable option, you can position yourself for a better upside by doing your planning upfront.

Read more about Bill Gross and his plans gone awry.