Misconception #5 – A Succession Plan Isn’t Needed If I Plan to Sell
A common misconception is the thought that plans to sell your business negate the need for succession planning. Unfortunately, this thought process couldn’t be more wrong, and has a direct impact on the amount of cash you’ll have in your pocket when you actually do sell the business.
Business value is dependent upon the predictability that the earnings will continue after a transfer of ownership occurs, whether by sale, gift or estate bequest. Prospective buyers, banks, Wall Street and estate tax auditors all recognize that value is not all about today’s earnings but more about your foundation and ability to generate revenue tomorrow, and into the future. Any improvement you can make in the 10 different perspectives of the Succession Matrix® will build value in your business.
A Succession Story
If you are not yet convinced, let me introduce you to one of our prospects who we will refer to as Jay for the sake of this story. For several months there had been some dialogue about developing a succession plan for his business. Jay’s children had no interest in the business and since he had no other family members involved or interested in the business, Jay saw no practical value in moving ahead with our succession planning recommendations.
Shortly after Jay declined the succession recommendations provided, Jay called and said, “I have to tell you what happened to me yesterday. Since we talked last, I’ve been approached by one of my competitors. Things started off with general conversations about exit strategies. One talk led to another, and then we began to get serious about selling the business to him. We agreed to meet and start talking about price. When my competitor showed up to the meeting with his advisor, one of the first questions was, ‘Can you show us your succession plan?’ I had to tell him I didn’t have one; and for all practical purposes, that was the end of the conversation.”
The remainder of the conversation with Jay focused on the primary reasons that succession planning adds value to any business.
Here are the key points to keep in mind:
- Well-designed succession plans include a strategic plan that becomes an internal marketing tool. By involving your key managers, you can strengthen management synergy and teamwork, ensure leadership continuity, and boost business performance. These three outcomes build the value of your business and make you more attractive to prospective buyers.
- The government believes it is entitled to 35% of your estate. Use estate planning to drive that percentage as low as possible. Even if you have no heirs, your estate will more than likely have beneficiaries, charitable or otherwise. Understand the value you have created and maximize your legacy endowment.
- A good succession plan is at least bi-focal: family and business. So, it’s more than wills and trusts. The business focus can free your time for other pursuits and activities that provide more pleasure, enjoyment, and satisfaction than the business.
What are the issues impacting the value of your business?
Contact us to schedule a Phase I diagnostic assessment of your business to find out.
