Creating an Effective Transition Plan for Business Succession
1. Waiting until you are ready to exit to devise your transition plan will not provide sufficient time to train successors. Whoever is taking over the reins needs time to learn how to run the company and time to earn the respect of your work force. Similarly, it is crucial to let your successor(s) operate freely. Do not micromanage them. It is far more preferable for them to make a mistake when you are still at the company and available to help guide them through the issue. Let your successor ease into the position by boosting their confidence and supporting their enthusiasm. Don’t suck out their lifeblood by constantly looking over their shoulder.
2. Business owners generally want the maximum payout possible from their business when they exit, but taking out too much money could ultimately bankrupt the company by not leaving the company enough cash to grow effectively. I’ve seen cases where a company has gone out of business seventeen months after the business owner exits because they got greedy.
3. All stakeholders need to be involved. The transition plan should address ways to keep key employees from leaving, such as offering incentives. The business owner needs to align his family & other stakeholders with the transition and have open, transparent communication with employees to allay concerns, keep moral high, and maintain top performance. It is also vital to reach out to suppliers and landlords to make sure contracts and/or or leases are maintained and to assure customers there will be no disruption of service or quality.
4. A transition plan can lay the framework for easing your successor in and phasing you out. Proper grooming can make the difference between your company sustaining its performance for a long time or going out of business within a couple of years. The most effective transition plans include a timetable that starts well before the company owner plans to exit, anywhere between one and three years.
5. A transition plan should address the unexpected such as illness, death, or other catastrophes. Beyond ensuring that you have appropriate insurance coverage, your transition plan should detail who will be in charge, how the different duties will be managed in relation to completing the transition of the business, and the time frame in which it needs to happen.
We help business owners lay out exit plans that align their personal, family, financial, and business goals and ensure their company’s future for generations to come.
Are you maximizing your company's growth and valuation potential?
Get your free score + 5 custom scorecards to see a point by point analysis of your company.