Succession Planning:
Now is Always the Best Time to
Start
By Mike Hihn
Here’s a concise definition of succession
planning. I found it at the National Federation of Independent
Business web site (The
Succession-planning Preparedness Quiz):
“Effective succession planning involves
building the value of your business during your period of ownership
and management, and having a plan in place when you’re ready to step
down. It means that management authority and control are delegated
responsibly. Finally, it means that the benefits of ownership are
fairly distributed to those who are entitled to them.”
There is one obvious omission – premature death
of the owner, especially if he or she still actively runs the
business.
To state it bluntly: if a meteor strikes you tonight,
would your business survive?
Can you answer that question to your key
employees, your investors and/or partners, your suppliers and your
family? My first client did that every year, in writing to all
affected individuals. I can still hear Herb’s words. “All these
people rely on me, in one way or another. Several have made a major
commitment to me and my business. I feel obliged to show how their
trust in me is justified.”
Herb reviewed his Succession Plan every year,
as an integral part of his overall Business Plan. How could it be
otherwise? From the NFIB definition above: “management authority and
control are delegated responsibly.” Is proper delegation a goal for
only succession? Or is developing your management team an ongoing,
critical responsibility for any growing small or family business?
To attract the type of people you want, you may
need a preliminary Succession Plan first – especially if you may need to
offer equity. Your Succession Plan may need to be quite flexible – if,
for example, your children are still young or yet untested in the
business.
You may have already hired a CEO, thus removing
yourself from daily operations. Should you (and can you) also insulate
senior management from interference in the future, by your heirs? Should
only family inherit your remaining equity? Should your remaining equity
be sold to your family, and/or an employee stock purchase plan?
So, when should you begin Succession Planning? The
best time is always now. Include it with your annual Business
Plan, even if your decision becomes, “I don’t need a Succession Plan
yet.” Start asking succession questions now, this year, as part of what
your business needs for next year. If you don’t start asking those
questions too soon, then you do risk starting too late
If you’re a founder, don’t miss possibly the
biggest succession milestone of all. To keep or sell the business. Are
you the best owner to keep the business growing, adding value for yourself
and all other stakeholders? Or is time to retire, or cash out and
perhaps start another business? This too should be asked every year,
especially if you’re still in daily control of a business. Where is it
written that founders (or founding families) must be the ones who grow a
business to its full potential? (Not many businesses are all that
growable.)
Entrepreneurs come in three
different varieties – three different ways to be productive and
successful – three different ways to win.
-
Some entrepreneurs excel at creating new
businesses, but cannot manage them beyond a certain size. Many of these
folks become “professional founders” -- creating and cashing out of many
successful startups. Others, perhaps the majority, are satisfied to
have created a livelihood for themselves. They may employ one or two
family members, perhaps a few non-management employees.
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Others excel at growing an existing business to
its full potential, developing management teams, and creating
entrepreneurial management structures – but are incapable of starting
from scratch.
-
A few founders – very few in my experience – can
learn and grow enough to take their vision from a garage business to $5
million or more in annual sales – on their own, or with the help of
family.
Summing up, now is always the best time to begin
asking succession questions. And one of the first questions should be,
“Which type of entrepreneur am I: creator or builder, and can I become
both if needed?”
Hihn, newly resident in the Boise area, has been a
small-business consultant and entrepreneur coach for over thirty years.
Contact him at 208-345-6140 or 877-596-6379 (toll-free).
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