Often times the term succession planning creates a negative feeling for business owners. The reality is, the stigma tied around the word succession is too closely aligned with “death” and “retirement”. In addition, the natural anxiety and emotions that come with the thought of exiting the business can, and do often prevent owners from planning for the future. Entrepreneurs simply do not want to plan for a time that means they are no longer building a business. The reality, however; is that succession planning has a direct impact on the value of the business.

Value of your business is not solely determined by the amount of current cash. When the day comes that the owner looks to transition away, the potential buyer or successor will value the business based on what future earnings look like, key leadership and management that is involved (i.e. knowledge and experience), and contributing family dynamics. Outlined here are four areas where planning can have an impact on the value of your business, and your future.

Future Earnings

Business success and succession are dependent on financial success. Standard operating processes lay the foundation upon which a business can build long-term sustainability. Ensuring your business’s products or services are relevant and of high demand, regardless of changes in markets, generational interests and technology confirms business value. Creating standard operating processes today and strategies to adjust to customer needs ensures proper organizational structure and capacity for the future.

Leadership and Management

A great deal of business value is locked into the management team and your organization’s approach to teamwork. The depth of leadership and management bench strength is essential as every position experiences turn-over for a variety of reasons. It is inevitable that key leaders will look to step out, whether due to retirement, looking to change paths or simply just to get out. The succession planning process positions you to take advantage of opportunities to develop recruiting, leadership development and retention programs to grow your competitive advantage – your people!

Successor Development

Building a business that will succeed through multiple generations while continuing to build value requires a focus on successor identification and development. Whether you are looking to sell the business, or transition to a key manager or family member; banks and buyers are interested in who can carry the baton through the transition. Successor Development is not just about who has the best business savvy or best rapport with employees. Developing the next leader of the business ensures that the goals and objectives are met and sets a path for future growth.

Family Dynamics and Governance

Family and business issues can become at odds and directly impact the sustainability of the business. The relationships you have with those in your formal and informal family have a positive or negative impact on the achievement of your business goals and vision. Intra-family matters can and will distract and weaken the focus and commitment of the management team, including you as the business owner. Establish forums and processes to promote effective intra-family communications.

Establishing a succession plan early and visiting it often ensures business owners, family members and key leaders of the business are not blindsided with problems. Understanding these issues empowers a succession planning team to proactively avoid issues in the present and build business value.

 

Kendall Rawls knows and understands the challenges that impact the success of a family owned business. Her unique perspective comes not only from her educational background; but, more importantly, from her experience as a second generation family member employee of The Rawls Group.


 Sign up for our monthly e-newsletter to stay informed on how to overcome related succession planning issues.