Succession and other Transition Planning

Many business owners feel like their company couldn’t survive without them in the office making decisions and giving direction every day.  Unfortunately, they are often 100% correct.

Every business owner has a time when they start wanting to extract themselves from the day-to-day operations of their business and/or want to start planning for eventual complete divestiture from the business.  All too often that day comes with little or no notice.  Will your business be ready?  It is better to plan NOW than to be unprepared and have your hard work crumble away or worse yet, be a burden to your loved ones.  Consider the following:

Operational Succession — If you are committed to continued ownership, whether for your own income or to provide for your family’s future generations, you must ensure mature and professional operational and financial decisions can be made.  Remember:

• It’s an organization, not necessarily an individual.  Don’t get locked into finding “another you.”  It’s unlikely that another individual is going to have all the experience and attributes that have allowed you to make the company successful.  Look instead at building a professional organization that can function together to keep the business successful.
• It’s about a culture, not an industry.   Key hires must have a good fit to your corporate culture (or your desired corporate culture).  They should have rich business experiences that can be translated to your industry, but don’t let Human Resources screen out high-value candidates because they don’t have a certain degree or industry-specific experience.
• Be an active mentor, not a back seat driver.  Before bringing in a new operations leadership, be committed to the time it takes to transfer your industry and business knowledge.  Be prepared to provide firm support to new leadership and tame the inevitable mid-level resentment and doubt that can otherwise undermine the transition.

Business Succession — If you are going to cut free from the company completely, the question frequently comes down to whether there will be an internal succession or an external acquisition.  Before making a determination, consider:

• Internal — Do family members or other business partners meet ALL of the following essential traits to take over every aspect of continuing the business?  If not, look externally.
  • Financial strength and stability
  • Supporting organizational structure
  • Professional experience and ability
  • Full personal commitment
  • Evident enthusiasm and a strong vision for the business
  • External — By far the most common obstacle to external transitions is the business valuation.  Owners must have an objective understanding of the true value of their business before embarking on discussions with outside parties.  There are two keys to making this a success:
    • Even though you may have a competent financial staff, engage an outside advisor to evaluate the business and make an unbiased valuation.
    • Start the planning process early enough that you can make changes to business practices to enhance your business valuation before it’s time to make the transition.

Don’t walk alone or rely solely on generic legal counsel, your Nebraska MEP is focused on the needs of our state’s manufacturing community and we have partnered with professional advisors who have a depth of experience in corporate transition planning and execution.  Let us help you get on the right path.