Who Will Care For Your Baby?

So, you know you need to plan for your succession…eventually… even if you don’t plan to retire anytime soon. Where to begin? Start with an assessment of your current strategy, goals, culture and key people. This will clarify the gaps you need to close, and set the roadmap for your direction over the next couple of years. It’s also a great starting point for identifying the people you will entrust to carry your company forward, profitably and sustainably. (who will care for your baby?)

Your goals and strategy assessment will help you understand what needs to be done, your key people assessment will help you figure out what particular competencies, skills and experiences you have to work with and whether they will be sufficient to deliver your strategic plan. Your culture assessment will clarify the framework within which your business functions today. A strong and effective culture facilitates growth, profit and sustainability. A negative or toxic culture creates instability, poor productivity and high turnover.

The key questions you want to answer are:

• Will your current strategies be sufficient to deliver the business valuation you need to fund your retirement, meet your personal financial goals or achieve your business objectives?
• Can your management team deliver the strategy and goals – without your week to week involvement? If not, what will it take to prepare them to do so?
• Does your current culture support stability and growth? Management and ownership transitions create stress on the business. Will your culture support these changes or hamper them?

If your strategies are insufficient, get the right people in a room and rework them. If you don’t have defined strategies, get the right people in a room and define them.

If your management team cannot deliver the strategies and goals, without you, you’ll either need to change the strategies and goals, develop your management team so they can deliver them, or hire new people who can be more effective at implementing those strategies.

It gets particularly tricky when you take yourself out of the equation. For instance, if you are the primary salesperson and your post-succession strategy relies heavily on sales growth, you will need to develop or hire somebody to close that gap.

Your task then will be to assess your high-potential and top performers to see what competencies and experiences they bring and whether they might be able to fill the identified needs, now or in the future. Just remember, this is a long term process. It takes time to develop people. It takes time to hire and onboard new people, no matter how talented they are. Give yourself the time by starting early.

If your culture is negative or toxic, you need to understand the underlying reasons and proactively address them. Changing the culture takes a concerted and intentional effort, and it may require taking a bold stand for the behaviors you want, and a bolder stand to end the acceptance of behaviors that no longer serve your organization.

Here are a few other things to keep in mind as you’re starting to evaluate your employees for future leadership:

• Attitude matters. A lot. You can train skills, but it’s much harder to train attitude.
• Culture counts, too. If your culture is productive, hire people who fit that culture. For example, a deliberate, measured leader would likely struggle heading a fast-paced, ultra-driven company. Likewise, a task-oriented leader might struggle in a relationship-oriented business.
• The role of the CEO includes three main buckets: leading strategy and vision; developing people; and being the organization’s external face. This could include high level sales calls, vendor contract negotiations, forming strategic alliances, etc. Who is prepared to play those roles in your organization?

Beware of a few common pitfalls. CEO’s are optimists. That motivates them to find a way to be successful against the odds. It also can cause them to have a rose-colored view of their employee’s capabilities or potential, or expect the employee can grow more quickly than is possible in the time the CEOs have to train them. When hiring, they may put all of their hopes and dreams into a candidate who may not be able to live up to the billing. Not only can this set the new hire up for failure, but it also can create turmoil among longtime employees in the organization, some of whom may have designs on a top job themselves.

Finally, and I know I’ve mentioned this many times before, beware of not getting started early enough. The timeline to do this well is measured in years, not days, weeks or months. Start now to position your managers to do their jobs well.

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!