Many small and medium business owners lack succession plans. Often the owner has no family members active in the company, so no obvious successors are in line to take over. This article focuses on such owners; multi-generational transitions are a different subject.
The most common reason for not creating a succession plan is that the owner doesn’t know where to start. That’s understandable. Although we all know that we will die one day (and possibly become incapable of running the business before death), many business owners don’t have good ideas about what will happen when the time comes. And the hardest task to begin is the task that does not have clear first steps.
The first three steps are fairly simple and easy. Taking them will help the business owner identify the succeeding steps. Eventually, a succession plan will be developed enabling the business owner to stop worrying. That will also enable employees, key customers and suppliers to stop worrying.
The great first step is to learn what the owner’s choices are. And the best way to do that is to talk to ten business owners who have retired or developed successful succession plans that don’t involve family.
A business owner may very well know a few people who retired and sold their companies. Reach out to them. But many business owners will be acquainted with only a couple of such people. A full set of the possibilities requires more cases to study. So part of this first step will be to talk to people who can refer the owner to others who have sold their businesses and retired. Good referral sources would be fellow members of trade or professional associations in the company’s industry. Ask people who may be retirement age what their succession plans are. Other good referral sources from the same industry would be suppliers and customers as well.
Beyond the industry, accountants, attorneys, bankers and insurance agents would probably be able to make referrals. Keep at it until at least ten conversations have been held.
The business owner could do a good bit of research online, finding good articles such as Thienel Law’s or Robert Newcomer-Dyer’s. However, personal conversations with people who have gone through the process will add texture to the bare facts, as well as pitfalls to avoid and opportunities to embrace.
The second step is based on these conversations and research. The owner needs to keep notes on the possibilities that others not only used, but also those considered and rejected.
After learning what the options are, the third step is simply to plan the next few steps. It is possible that a single option will stand out. For example, the best option may be to sell the company by the owner’s 65th birthday. If that’s the case, then the next steps are to ensure that the company will be attractive to a buyer at that time. Identifying what needs to be done to make the business salable is the next step.
In other situations, the owner will have narrowed the choices to a couple, such as liquidating the company’s assets or selling to a current employee. In this case, the next step would be to sketch out action items for each of these possibilities.
So the business owner who lacks a succession plan has three steps to get started: talk to others who have exited their businesses, identify viable choices for the owner’s particular situation, and then sketch out the next three steps in developing the plan. With this simple plan to get started, there’s no excuse for a business owner to leave a mess behind when death or incapacity comes along.