Insights & Info

Insights > Get an Early Start on Your Business Succession Planning

Get an Early Start on Your Business Succession Planning

By Generational Equity

Business Mentoring

“Business owners function at such a rapid pace to remain competitive, it’s no wonder that developing their exit plan and replacement doesn’t seem like today’s priority.” – Kirt Walker, President & COO of Nationwide Financial

Right now, the thought of no longer owning your business could be the furthest thing from your mind. If you still get a rush from walking into the office and managing your team every day, then you might feel the idea of exiting is an unnecessary distraction. But, no matter if you see yourself leaving your company in five years, ten years or fifty years, we feel it is essential for business owners to get an early start on their business succession plans.

Why is that? Because you can’t put a price on PREPARATION. It may not be soon, but one day you will exit your company, and most would prefer it to be on their own terms. Having a clear understanding of what will happen to your business once you leave the helm, whether it is selling to a private equity firm or a strategic buyer, gives you peace of mind for the future. Especially for family businesses, which according to the U.S. Census Bureau, account for around 90% of enterprises in the nation, there might be an added emphasis in securing the future legacy of your company.

It comes as a shock, then, that three in five small and medium sized enterprises (SMEs) do not have a business succession plan in place, according to Nationwide’s latest Small Business Survey. It is surprising that the majority of company owners do not have plans in place for when they are no longer in control. Not only does this put the longevity of your company beyond your ownership at risk (remember that around 70% of family businesses do not survive the transition from first to second generation), but it also makes your company less viable for prospective buyers.

“Why would having no succession plan impact the value of my business?” Potential buyers will likely be unsure as to your company’s growth prospects without you in charge. Entrepreneurs are often specialists in their industry, understanding every aspect of their business, clients and the market they operate in. So, if there is no clear demonstration that your organization will continue to grow without your ownership, it is doubtful that you will receive an offer that reflects your expectations of your company’s value.

Starting Your Business Succession Plans Early

An image

So, now you’ve realized how important it is to have a business succession plan in place. But why handle it now? At Generational Equity, we feel it is essential to start early to best navigate the obstacles associated with an exit. Particularly with family businesses, there can be disagreements and hurt feelings over the choices you make about the future ownership of your company, and these are only exasperated if you give yourself a tight deadline to make these decisions. Therefore, starting these discussions early will help you traverse this process as smoothly as possible.

“It is important not to make assumptions about who will take over your business after you leave”

Where do you begin? First, it is important to establish goals and objectives, not just for yourself but for your management team/family members. What are your visions for the business? How committed is everyone to its long-term success? Once you have a collective concept on the future of your company, aided by the support of trusted financial advisors, you will have a clearer idea about how your business succession will work in practice.

Once your goals are established, the next stage in your business succession planning should be settling on a decision-making process. Again, a collective decision is the objective here: while you may own the company, discussing this process openly with your team or family will help everyone understand the conclusion you reach, limiting any ill-feelings associated with succession negotiations. It is important not to make assumptions about who will take over your business after you leave: we have encountered many entrepreneurs who were convinced their children would want to continue the family business. However, this isn’t always the case, which will leave either your children pressured into accepting a role they aren’t passionate about or you without a fitting heir apparent.  Also, financially, very few children have the capital to adequately pay you off at exit.   This often forces you to accept a long term note that the children may have problems ultimately paying. 

When your decision-making process is in place, you can approach the burning question: who takes over when you exit? Take your time with this decision as it is crucial to the longevity of your single largest asset. Discuss this with your financial advisors, as they will help provide an impartial assessment of your team’s strengths and weaknesses. Remember, equal and fair do not mean the same thing: it is fundamental to make this decision with the future of your business in mind, which will likely mean several tough choices. It is ideal to settle these early so you can progress to the training of your eventual successor.

“Determining the successor for your business early offers you the advantage of molding and training them to meet your company growth goals.”

Also, you should make sure to distinguish between owners and managers – although you might place yourself in both categories, you may wish to split ownership across numerous people while assigning overall management to one individual. With so many different roles to be decided for a successful business succession, it is imperative you receive expert advice in this area.

Determining the successor(s) for your business early offers you the advantage of molding and training them to meet your company growth goals. This step is essential in building a buyer-ready business; buyers want to minimize the risks associated with any acquisition. If they feel your presence is crucial to maximizing the return on their investment, they will likely lobby to keep you tied to your company post-sale. Training and working alongside your intended successor will ease doubts a buyer might have about your company’s ability to grow following a transition in ownership.

A final advantage to starting the essential step of business succession plans as early as possible is the opportunity to develop this over time. Things change, and it is recommended to always have an up-to-date version of this valuable documentation. A timely start gives you the time necessary to alter these plans when appropriate, and leaves your business in the best position possible if one of the dreaded 5 Ds become a factor (Death, Divorce, Disablement, Disagreement, Disinterest).

Start Your Succession Planning with Generational Equity

An image

The bottom line is this: business succession planning can be a challenging process, and is something that demands professional guidance. Our experienced M&A advisors at Generational Equity have helped hundreds of business owners establish a business succession plan that ensures the legacy of their company, as well as making it a more appealing proposition on the market. Taking this important step as soon as possible will place you in the best position to prepare for an exit on your terms, whether you hand the reins to an employee, partner, family member or external buyer.

To discover more about business succession planning and how it impacts the value of a company, you should attend one of our complimentary executive conferences. This conference offers a comprehensive insight into the M&A process, giving business owners strategies for value enhancement and exiting their company for the optimal price. Don’t hesitate to find out when we will next be in your area.

You can also reach our professionals at Generational Equity through our dedicated contact page.

Make an informed decision

The best decisions in life are informed decisions. We release educational business insights like this every week. Subscribe to make sure you don’t miss the latest news, views and analysis.

Success

Success, you have been added to our list.

Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!
Eric Erlandson, Owner, Action Fastenings, Inc.
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
Betty L. Brennan, President, Taylor Studios
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward.
Tom Currier, Former President & CEO, Rackmount Solutions
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.
JoAnn Ellis, Owner of Fondren 5 Star Kennels
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.
Caroline Connelly, CEO, OptoTest
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.
Rick Greene of Dobbs Equity Partners LLC
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.
Shane and Johanna Kline, Owners of Vision Upfitters
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.
Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!
JoAnn Ellis, Owner of Fondren 5 Star Kennels
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.
Salvo Stoch, Founder and CEO of Sleeping Partners
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
Bryan D. Horn, Owner, Over Under Clothing
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller