It’s easy to feel invincible when you’ve achieved success and believe that you’re at the top of your game. The last thing on your mind when all systems are humming is stepping down as head of your business. But if you aren’t planning for your succession far in advance of your actual exit, your health — or even worse, your mortality — could force an unplanned exit and all your years of hard work and dedication would depart with you.
Everyone, whether they plan to or not, will one day exit their business. Some will exit smoothly and profitably with a succession plan. But others without any backup plan have only a cessation plan. Too often, gifted entrepreneurs build practices not to succeed (the root of succession), but to cease (the root of cessation) after they exit.
Unless business owners are as intentional about their succession plan as they are about their business plan, the businessperson who has spent a career building a successful business won’t see the business continue beyond his or her involvement. The company will come to an abrupt stop when the owner exits. This is often the case among doctors, attorneys, accountants, financial planners and the like.
For example, while financial advisors pride themselves in asking clients the hard questions about business continuity, as a group they do a horrible job of heeding their own advice. The Financial Planning Association reports only 11 percent of advisors have a well-defined retirement plan in place. The idea of leaving before they must exit is a fact they refuse to face.
However, working until you can’t work any longer — what some call riding it out — is a waste of relational capital! At all costs, you want to avoid your exit becoming an unplanned event. What if it was just a smooth closing of one chapter and the opening of another? When you give exiting the attention it deserves, everyone wins. Failing to pay attention can be disastrous for those you leave behind.
As you embark on succession planning, consider these facets:
- Leave as the wave is cresting. It’s extremely difficult for most successful high achievers to consider exiting when the business is on top. But when you begin to look at your business through the lens of an investor, you realize, strictly from a financial perspective, the best time to sell is when the value is up, not heading downward.
- Try not to linger too long. Few business owners appreciate the implications of exiting late. The longer you wait, the more it concerns clients. No one is indispensable. It’s a fallacy of ego.
- Put others’ interests at the forefront. A great succession plan puts the needs of the firm, clients, staff, vendors, and successors above the needs of the proprietor. Communicate with your key clients and staff precisely how the transition will benefit them.
- Court potential successors well in advance. The candidate must be integrated into the firm before taking over. Allow the successor to lead before becoming the leader.
- Prepare emotionally for your exit. The earlier you start thinking about an eventual exit, the easier it becomes to be emotionally prepared to do so, even if it’s 25 years from now. Look at the business the way an investor would view it.
- Put your affairs in order. Make sure your personal financial house is in order before you sell the business. Even though the value of the business most likely represents much of your net worth, make sure your personal financial condition is strong enough to allow you to leave with or without the proceeds of the sale of the business.
The need to decide whether to sell, merge, transfer, or terminate your small business is an inevitable decision you as an entrepreneur will face. You can either be prepared for it or surprised by it. The more prepared you are for the inevitable, the more likely you can make certain everyone wins.