By Nicole Leinbach
Preparing to transfer your business can be a daunting process but it will be less so with proper advance planning. In Part One of this two-part series, we looked at the importance of starting the planning process early, determining your reason for selling, understanding your business revenue and profit, and accurately estimating the value of your business. Additionally, we shared insight about the value of external support during the succession process and resources to consider using. Having these details confidently in place can help you move ahead with the next steps in succession planning.
Part Two further explains how to prepare small- to mid-size businesses for succession, including developing a realistic succession timeline, preparing for unexpected challenges, deciding if you’re willing to be a consultant after the transfer, and evaluating your business from an objective perspective.
Develop a Realistic Timeline
The moving parts of any business are complex, but as you approach succession, they become even more dynamic. Having up-to-date customer contact details, accurate financials, detailed written business procedures, and past tax records will be among the necessary details needed for a business sale. Keeping this in mind, how prepared are you to provide these details should a potential successor knock on your door tomorrow?
To help speed the process and reduce friction, ask yourself the following questions:
• Are you preparing for an exit?
• Are you preparing for growth instead?
• Are you working towards both growth and an exit?
• Is your health an underlying reason to sell sooner than later?
• What other variables may contribute to your timeline of succession?
• What is your goal for a date to sell?
• Do you have a firm date for when you want to have the sale completed?
• Are you prepared to look for multiple buyers, or are you willing to negotiate on the first offer only?
Once you’ve considered these factors, you can begin to build a framework to help ensure a smooth transfer. To do this, you’ll need to create a checklist with deadlines for each item to break this complex task into more manageable, less intimidating steps.
Prepare for the Unexpected
While you’re gathering the necessary paperwork and files for succession, you should also prepare for the unexpected. In the event of your death or a change of heart in selling your business, what will the next steps be? These are details your attorney can — and should — outline in your succession contract. After all, if the pandemic reminded us of anything, it’s that the unexpected can and often does happen. Thus, be sure you have clear directions in your succession plans and official paperwork of what will happen if the unexpected occurs. This will save time, stress, and even money in case something unplanned does happen.
Consider the following contingencies:
• If you die, who will take over the business decisions?
• How will unexpected disputes be resolved?
• What timeframe will be applied to unexpected issues to keep them moving ahead in succession process? For example, seven days or 30 days to come to an agreement.
Tackling tough decisions and conversations in advance is a smart approach to succession planning. Although you may hope to avoid unexpected events, being prepared is an essential step in the planning process.
Consider Being a Consultant After the Sale
As part of the succession process, many owners are asked to become advisers or consultants to the new owners of their business once it has sold. This can be shaped in a variety of ways, but often it includes having a one- or two-year commitment to advising the new owners as they transition in their leadership of the business. For some, this may mean working a specific number of hours per week, while for others it may be an “as-needed” commitment. Serving as an adviser can provide the satisfaction of nurturing the hard work you’ve invested in the business and passing on your passion to help others keep it alive and thriving.
Evaluate Your Business From an Objective, Outside Perspective
Running a small business isn’t all about making impersonal decisions based on facts, numbers, and data. In reality, many emotions are involved in both operating and selling a business. Understanding these emotions is an important part of the succession experience, and one to constantly keep in mind as you move ahead with your plans.
Take into account the following questions regarding emotional factors:
• Are you emotionally prepared to let go of your business responsibilities?
• Do you care if the business is sold to someone you don’t know?
• Will you be financially secure without your business?
• What worries you the most about not owning your business anymore?
• Do you have ideas on how to pass your time once your business is sold?
Challenge yourself to be authentic and realistic with answering these questions and even expanding on them in your own evaluation process. When you prepare for both the subjective emotional and the objective business aspects of your decision-making, the process will become easier and less stressful.
Creating a business succession plan is exciting, yet scary. It’s rewarding, yet overwhelming. It’s confusing, yet full of opportunities. There is much to take into account, yet so much to look forward to. Having a strategic plan in place will help you reach your succession goals on the timeline you prefer. Just remember … keeping this plan on track may feel challenging at times, but with perseverance, you can stay on course, even if you make a few wrong turns along the way.
Well-known businessman and author Hal Shelton once said, “Companies are bought, not sold.” As you prepare to exit, keep buyers in mind so they want to purchase your business and will respect it once it’s in their hands. This will help make it a rewarding experience for both buyer and seller and will be one you can be proud of once it’s completed.