Most privately held companies lack a long-term succession plan. Why? Business owners are often focused on operating and growing the business, rather than on who will operate and grow the business in the future. Succession planning is also time consuming and involves uncomfortable personal, family, and money issues. But, the continued success of a business depends on its leadership and the need for new leadership sometimes arises sooner than expected due to accident, illness, or some other sudden event.
Succession planning includes the development of an in-depth, strategic business plan that outlives or at least “outworks” a company’s current leadership team. It asks business owners to take a long, objective look at the company they’ve created and envision and prepare for a sustainable future. The plan articulates a clear vision to family, employees and key stakeholders.
Keep it in the family
For many people, creating or building upon a family business is part of a cyclical American Dream. You put in thousands of hours of hard work to build a profitable business to provide for your family, and then you pass the keys to the company down to the next generation and hope that they do the same.
According to the U.S. Bureau of the Census, upward of 90 percent of American businesses are family-owned or controlled. These businesses span from your local retail shops to globally known icons like Walmart. Passing your business down to the next generation is still a popular, viable option for entrepreneurs and business owners.
Transitioning control of the family company in today’s rapidly changing, hyper-competitive business climate is no longer as seamless as it has been in the past. If you want to keep your business in your family, you must first ask yourself:
In order to effectively answer these questions, business owners need to consider them years-even decades-before they hope to retire. If the answers are “no,” there are other options.
Sell the business to a non-family successor
If you have decided that keeping the business in your family is not for you, but you want your business to continue operating as if you never left, you’ll need to find a successor.
You may already be grooming somebody to take over the company when you retire, or you may be interested in looking outside of your organization for an established candidate who is ready to pick up where you left off.
Sell the business to a third-party firm
Your organization was built from the ground up into a solid, profitable business. The business has allowed you to earn a living and support your family throughout your career, but now it’s time to retire.
What comes next? How do you reap the rewards of your years of hard work? For many business owners, the answer to these questions is selling the business to a third-party strategic or financial buyer.
Venturing down this avenue requires a great deal of planning, as getting the business ready to sell could take years. You want to make sure your financials are in order, your future projections are accurate, and-of course-you want to sell when your business is at its highest value.
Whether you’re passing the business down to a family member; hand-picking a successor who can continue growing the business; or selling the business to a third-party, your succession plan should be as well-thought-out as your very first business plan.
And the time to start planning is right now.