Business succession planning is a community issue. Businesses anchoring our communities and economies for the past 25 to 40 years have owners wanting to retire, in record numbers.[i] For the founding generations- some earned rest… For emerging generations… opportunities to shine. Logic demands that generational differences be understood as part of the succession planning process as well.
Owner challenges like planning, communicating and timing are daunting. So how does this looming, large scale handoff occur successfully? Reminders like "start planning now", "set personal goals" and "define your business without you" cover common sense basics. Factor in our human tendency to prioritize urgent tasks however and we are right back to why less than one third of owners have a formal transition plan. There will always be pressing and urgent tasks but few elements of business management will have the same long term impact as planning for your exit.
Let me establish some basic definitions:
Estate Planning- How assets (generally business and non-business) are to be transferred
Ownership Succession- Transfer of business ownership
Management Succession- Transfer of authority and operational responsibilities
Exit Strategy- Orchestrating future chapters of the business; including actions taken by present owners/stakeholders and also future owners/stakeholders
Take the above definitions and develop your vision and goals for each one. Define personal goals as well. They will provide touchstones as plans and steps become first outlined, then detailed. Allow ample time for this effort- it's important. Business transition is inevitable, so reduce the uncertainties.
In the life of a small business, the issue of successors and succession planning looms large – even if the strategy selected is business closure. Accurate and understood "Scorecards" become vitally important, so brush up on them:
Commonly accepted summaries like- Balance Sheets, Income Statements and Tax Filings
Financial Ratios- Indicating magnitude of liquidity, debt and profitability
Analysis- Of the current competitive market plus the future outlook
Market Value- A preliminary valuation and estimate of assets
These indicators are necessary to assemble what is commonly known as a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. During this exercise, possible strategies might show themselves and suggest potential courses of action. SWOT is also a timely reminder to seek out competent resources covering an array of subjects such as; real estate, legal, tax advice, financial planning, insurance, mediation and more. You are going to need a trusted transition team.
At this point, owner attention goes in at least two simultaneous directions. Avoid solely working in your business and invest time to:
- Begin drafting your exit strategy, including desired timetables. Identify necessary and "fixable" corrective actions. Reduce company dependence on you.
- Prepare a comprehensive list of duties with a focus on functions and responsibilities, but avoiding individual names and titles. What must happen for this business to succeed? NOT what "shoes" need filled? How will you prepare everyone? What gaps exist?
Communication essentials come next, including careful LISTENING. Family members, employees, investors, lenders and customers are key groups to fully understand. This is a crucial REALITY CHECKPOINT. Do the wishes and hopes of others align with yours? Have you correctly identified entitlement expectations? What additional weaknesses are surfacing with regard to skills, personnel, resources and problems? You are looking for incorrect assumptions and business killers… fatal flaws.
Circling through this fact-gathering process numerous times and hosting frequent discussions enables you to add details. Decisions like "sell or close" then generate further levels of detail.
A pertinent, second topic is the understanding of generational differences. After all, emerging generations, new owners and entrepreneurs are fully HALF of the equation! The "reins" must be turned over in some form and fashion… hopefully in winning style for all concerned. Understanding how generations prioritize, process and set goals is fundamental succession planning. Our future leaders, born in the last 20 years are 30% of the population and those born in the last 30 years are 35% of the workforce- it increases daily. They are the bright hope of families and communities.
Challenges abound for the buyers and inheritors of an existing business. Settling on an equitable valuation is difficult given our capitalistic default of "sell high, buy low". The common standard of fair market value will likely seem unfair to one of the parties. Securing a loan from lenders and tax obligations further complicate things. Individual differences and challenges are then 'heaped' on top.
Multi-generational transition and management teams are an interesting concept to consider. I cannot think of any part of a business that would not benefit from a blend of seasoned experience and current generation connectivity. Dr. Teresa Byington[ii] poses this challenge- are generational differences problems to solve or things to build on? Clearly with succession planning it must be the second view… something to build on. Byington led a great webinar presentation[iii] on 'friction' between generations in the workplace. It takes effort to recognize and to benefit from:
Different communication styles, tools and techniques
Personal work habits and time management methods
Diverse leadership and teamwork styles
Wouldn't it be great to identify shared values and goals, or at least understand and accept each other's motives before getting stuck in all of the detail? As challenging and difficult as this can be, it seems like the only firm foundation to build a transition on. Understand yourself, make extreme effort to achieve real two-way communication with stakeholders and then build confidence that it is worth proceeding with the details of an alliance.
[ii] Dr. Teresa Byington, Associate Professor/Specialist at University of Nevada Cooperative Extension.
[iii] "Generational Differences in the Workplace", June 22, 2017. Sponsored by the National Association of Extension Program & Staff Development Professionals (NAEPSDP).