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.

Are you willing to face reality?

When you’re dealing with the day-to-day challenges of running your business, it can be difficult to keep the perspective you need to manage for the long term. That’s where a board of directors comes in. Formal or informal, these advisors can provide guidance to help your business be profitable and sustainable. They bring an objectivity to look at your business, industry and environment and help evaluate whether the people and strategies you’re putting in place are having the desired effect.

Most privately held companies don’t have a board of directors or even an informal board of advisors. This can put their leadership at a disadvantage. Sometimes the owner can get so close to the business that they focus on the day to day and lose sight of the key strategies and competitive landscape. Conversely, they can get so focused on the changing demands of the industry that they aren’t focused on the deliverables they need today.

Boards can be a powerful way to provide the fresh set of eyes that you need. You can seat a formal board of directors or an informal board of advisors.

When you create a formal board of directors, you are essentially paying someone to take on fiduciary responsibility for your company. The board is responsible to the shareholders to make sure the company is not being mismanaged and to help build shareholder value. Your expectation should be that they will reinforce and guide you in what is best for the shareholders in the short and long term, and hold you accountable to take action. If you are the only shareholder, an informal board of advisors may suit you better.

Informal advisory boards often are not paid. They are hand-selected people you like and respect, but there’s no expectation that you will necessarily take their advice and no real consequences if you don’t.

Yes, consequences. A formal board of directors can take action -- recommending changes in leadership, hiring external consultants, or driving changes in strategy or structure. They’re not going to get deeply involved in managing your business, but they can have a significant influence over what transpires at the top level. When it comes to succession, a board can also be that objective third party that pushes you to start planning for the future. They’re tuned in to whether you are potentially putting the business at risk by putting off the inevitable, and they may recommend or bring in the right resources if you won’t.

So how do you form a strong board of directors for your company? Start by identifying the skill sets that you would like to have represented on the board. It may be someone with financial skills who’s comfortable analyzing your P&L and balance sheet or playing an audit oversight role, someone who is retired from a career in your industry who brings deep industry knowledge, or someone with human resources or marketing expertise that bring valuable perspective on key issues or opportunities.

With skills identified, scan your environment for respected, credible leaders who are willing to put in the time to help your business be successful. Finally, take the time to bring them on board, orient them to your business, and share with them your expectations and how you expect them to contribute to your business success. One final note: If you are going to set up a formal board with fiduciary responsibilities, it might be wise to involve your attorney to make sure that you are setting up the appropriate structure, expectations and systems for success.

Happy hunting!

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