Do you have a vision for your business but are unsure how to get there, or feel like issues keep getting in the way? Have you ever considered how you would overcome the feeling of being blindsided by the unexpected?
Most of us go through the day with comfort and ease, believing we have it all under control. The reality is, anything can happen, at any moment. Are you prepared? Do you have the plans, processes and procedures in place to promote the growth and future of your business?
Regardless of where you are in your ownership cycle, planning is critical to ensuring the future of the business. Not only does it help drive additional value, but planning also protects partners and family from getting caught up in ownership disputes. More importantly, you are guaranteed that your goals and objectives are integrated into the future of the business. Asking yourself these questions will give perspective on where you are, and what you may need to consider:
- What are the goals for the future of your business and the future of your family?
- How do you feel about not being actively employed in the business and/or family members running the business?
- What is your vision of the future, and is your family in alignment?
- Do you have family members in the business that you trust to move it forward?
Understanding an owner’s vision of business growth is a key priority. Analyzing key performance indicators is critical to achieve upward trajectory. To ensure long-term growth and business value, it is necessary to confirm whether the business has the proper structure going forward, and in turn how the profits are today vs. future projections. As you look at the business’ future, ask yourself these questions to gain perspective:
- Do you have the excess capital and resources that growth requires?
- How dependent are you on cash flow from the business at the time you plan to transfer management to the next generation?
- Have you hired a professional financial advisor?
- Is there a plan for allocation of cash flow to achieve your goals?
- Will all business credit guarantees and working capital loans be reconciled prior to your transition out of management?
- Are you financially independent from the business?
Knowing where you are starting from and where you want to go is essential. Moving past the stigma of transition is often times what keeps owners from considering succession planning prior to thoughts of retirement. Navigating the emotional side, for most business owners, makes planning for succession even more difficult. The reality is that owners do not want to consider the option that they are not a part of the business. However, it is inevitable that it will happen one day, and when it does you want to make sure you have secured the future you desire, on both sides.
The value of your business is dependent upon the predictable earnings of the future. Succession planning establishes plans to protect those predictable earnings of the future. Therefore, succession planning PROTECTS the value of your business.
Get started by working through the Succession Matrix® which guides you along ten succession success factors that help you analyze and identify all areas that help your business build value:
Owner Motivation & Perspective
Your business ultimately takes on your values and priorities. Your motivation and perspective with respect to the business establishes the operating direction and performance expectations. Your view frames the values and practices of your business, which ultimately impacts profitability, efficiency, enthusiasm, innovation, customer satisfaction, and the sustainability of success.
Personal Financial Planning
This success factor involves using the fruits of your labor to build personal financial security, independent of the business. Having a personal financial wealth development and management strategy will provide you with the freedom to consider all viable exit strategies, without being forced into one based only on your financial needs.
The structure of your business has a direct impact upon items such as business taxation, control of business ownership, gift and estate tax on business transfers, and access to cash flow by the shareholders. Appropriately designed, communicated, and coordinated stockholder, operating and partnership agreements provide confidence in anticipated business value and ownership rights. These agreements help preclude future disagreements, and provide greater certainty that your expectations will be fulfilled.
Evaluating the performance of your business involves more than just looking at money and profits. A critical area of consideration involves looking at where your business stands, compared to your competitors. Ensure that your company and employees are working as effectively and efficiently as possible. Identify how your business is prepared for the future with respect to technology advances, market changes, contracting margins, and more demanding and sophisticated customers.
The strategic planning process is a collaborative initiative in which you, family members, and key management discuss and confirm the vision and mission of the organization, as well as the resources needed to achieve business goals. Engaging in this process periodically provides the opportunity for “Reality Alignments.”
Leadership & Management Continuity
A great deal of the business value is locked in the resourcefulness, commitment, enthusiasm, and teamwork of the management team. The ability to optimize resources in your business to achieve performance goals is crucial to the current and future success of the business.
Management Synergy & TeamWork
Teamwork is not a natural behavior in business due to the varied personalities. As the business owner, it is critical that you set the standard for teamwork. Encouraging all those involved to be team players, who all work in alignment towards achieving business goals, helps drive continued value.
Successor Identification & Preparation
Successor candidates may be key managers or family members. Some are obvious based upon their demonstrated performance and potential. Others have to be identified and reviewed based on their talent and past behaviors. It is critical that you establish reasonable expectations for employment and performance accountability.
Family Dynamics & Family Governance
The last two of the success factors look at families and the relationships you have and the positive and/or negative impacts on the achievement of your business goals. Establishing forums and processes that promote effective intra-family communication is critical to achieving and maintaining the dynamics and governance needed to build a strong business to sustain multiple generations.
Often times, an owner’s personal financial security is tied directly to business success. The success of the business is dependent not only on the profits, but the long-term sustainability, long after the owner is gone. A common practice for business owners is to focus on the business performance and reinvest profits back into the business for continued growth. Consider also looking at the strategic planning to ensure you have all of the appropriate resources in place to sustain success. Do not ignore the motivations that you have for the future of your family and business. Being prepared and building a foundation of success today will provide the opportunity for growth and continued success for future generations.
Author: Jeff Bannon
Jeff Bannon is a partner of The Rawls Group which has helped business owners with their succession planning since 1973. Well-respected in his field, Jeff is a highly requested speaker and has published numerous articles on this subject.