6 Myths of Succession Planning
The last time I checked, 1 out of every 1 retire, one way or the other! If you own a small business, it is crucial that you think about how you want your business to be handled once you are gone. Whether you want to work until you drop, sell out, or pass it on to your children, it takes proactive planning well in advance to ensure maximum success. Here are some common myths about small business succession planning.
The “I’ve got time!” Myth
You would think by now that we would have figured out that we don’t live forever. Before you know it, months turn to years, and suddenly you have to make a bunch of decision under stress because you waited too long. Don’t do it! NOW is the time to think about the long-term future of your business, not later!
The Equal Divide Myth
Often in a family-run business, the children or other younger family members are engaged, and it is common for the founders to fall into the trap of wanting to equally dividing the ownership in an attempt to ensure fairness and avoid family conflict.
The business is not simply an asset. It is a living, breathing entity, one that requires experienced leadership and a firm hand. Newsflash: Not every family member fits that description, or is best for the business!
The goal is not to avoid conflict, it is to ensure that the business has the greatest chance of ongoing success, and that means that not everyone involved will be overjoyed with the result!
The “When the Teacher is ready, the student will appear” Myth
The founder/owner fails to identify their successor in enough time to clearly establish them in the role. Training a successor doesn’t happen overnight, and should involve a lengthy training process.
Be proactive in identifying the characteristics you feel will be necessary for success. Carefully evaluate family members before selecting your successor. The best interest of the business may require a non-family member!
The key message here? Don’t wait!
The “Ownership = Control” Myth
Often business owners confuse ownership of the company with management control. These are not necessarily synonymous. Day to day management control of decision-making does not always require ownership in the business.
For some, the thought of transferring ownership to a successor is threatening. They are fearful of giving up control. This is a reasonable concern, and one that a good succession plan can address.
The “I’ll just cash out!” Myth
Too often, business founders put all their eggs in one basket when it comes to their retirement. The business IS their retirement, and their plan is to sell out for maximum value, ride off into the sunset, and live happily ever after on the proceeds.
Unfortunately, most small business owners have an overinflated view of the value of their ‘baby’. They put their best energies into building their business, so surely it’s worth millions, right? Only if there is a buyer who sees that much value as well! Many times the business is built on the reputation of the owner/founder (they ARE the business), so the value is tied up in their own ability to continue bringing the business in. This can mean staying on some time after the sale, helping train their replacement. So the ride into the sunset can be preceded by working for the new owner for a period of time.
Creating a business with real value that is attractive to a prospective buyer is not an easy task. It takes more than a ‘for sale’ sign.
The “Not ‘til I’m done!” Myth
Many business founders are so attached to their business that they simply refuse to think about a time when they must step back and hand the reins to someone else. They don’t want to face the fact that 100% of us retire, whether we want to or not. They wait until they are ‘ready’ (which often means never) before giving it serious consideration.
Too many businesses fail following the loss of the founder, and a significant contributor is the lack of a sound succession plan. This is essential, so take action sooner rather than later!