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8 Succession Plan Tips For Business Owners

Brian Jue and Roy Y Salisbury

8 Succession Plan Tips for Business Owners
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Most business owners want a successful transition of their business, that is always the goal. Whether it is keeping it in the family, letting employees take it over, or selling it outright to someone new, the business will live on.

The reality however, is most business owners do not prepare for the transition of their business. Certainly know they should, think about, and many do attempt to groom a successor. But most do not have a plan. And unfortunately, when life presents an unfortunate situation or even tragedy, we see many once thriving businesses simply shut down. Sell the assets, pay down the debts, and close the doors.If they are fortunate, maybe there is something left for the family/shareholders of the business to share. In this scenario, there is value that simply disappears, not to mention the legacy of the business, and the support it generated for its clients, customers, and employees.

How does an owner avoid this common scenario? By taking charge and putting a plan in place. You started the business to be your own boss, and to control your destiny. So put a succession plan in place and control your exit. Having a solid succession plan in place can keep a business going, and even growing, maximizing the value for ownership.

Here are 8 Succession Plan Tips For Business Owners:

  1. Identify Personal Goals

This sounds simple, but sometimes business owners are so busy, they simply do not take the time to evaluate their own lives. Do you want to retire, and if so when? Do you want to remain a part of the business? Do you want to keep the business in the family, or with employees? Knowing what you want to accomplish is the best place to start.

  1. Organize Financials

This is paramount. Have your accounting (with financial statements) in order, your tax returns in one place, have profit and loss statements for the past years at the tip of your fingers. If you have inventory, be real about what has value and what is unsellable. And make sure your most trusted know where to find this data. With it all in one place, it is there for an emergency, as well as assembled in the case opportunities arise.

  1. Personally Evaluate the Business

You know the business better than anyone. So take a step back, and evaluate it from your perspective. What are the pros and cons, what can be built on and what needs to be fixed. You might realize that with a bit of work in the right areas, the business could be better and you would like to stick around. Or, you might see future calamity and realize it is time to sell.

  1. Get an Independent Business Valuation

Understanding how much your business is worth is crucial. Seeing an independent valuation based on the fundamentals of the business, its financials, assets, strength of its customer base, will give you an idea of what it’s worth. Most likely you will think it is worth much more than the valuation. The reality is, the value of the business is determined by the buyer, and they will most likely use all means necessary to get the price down as low as they can. Seeing what it is worth prepares you or your heirs for this negotiation, and also gives you the time to do what it takes to increase its value.

  1. Develop Internal Leadership and Potential Successor

Whether you transition the business internally, or sell your business outright, for the business to manage the transition smoothly and continue its success, you will need to have people in place who know the business. And the best people are those who have already been working there. If you want to pass the business to a family member, make sure they know the business, want the job, and have the leadership skills to succeed.

  1. Identify the Right Advisors

There are all kinds of consultants that will line up to assist you. But are they the right ones? Can your accountant produce the right kind of financial statements, build a proforma, have experience in transitions? Does your attorney have the right expertise, use more than just a boiler plate buy-sell agreement? Will both be open to something beyond their experience? And always, be wary of your advisor's self interest. Do they really have YOUR best interests in mind?

  1. Create a Timeline

After identifying the above, create a realistic timeline for your succession. Your timeline should consider realistic expectations along with contingencies for the unexpected. Build in your presence during the transition- whether you pass it on or sell it, your involvement will be necessary. Depending on the complexity of your business and the parties involved, your involvement could start full-time, declining to part-time, to being an advisor. Buyers might ask for a 2-5 year commitment, which could be a great way to generate a better return for your business.

  1. Consider Alternatives that Maximize your Exit Scenario

Explore exit strategies and alternatives beyond what you may know, including beyond the comfort zone of your advisors as well. You may find a scenario that works better for you, or you may confirm your chosen route. Some of these alternatives may include you getting the ability to take some money off the table for your business and allowing you to still operate your business. Another option would be to grow your business and increase its value for an exit at a later date.

For the business owner looking for a staged transition over 3-5 years, who wants to help grow and expand the business and ultimately an exit at a much higher valuation, Small Business Development Group, Inc. (SBDG) has multiple options. The timeline for each scenario includes opportunities for ownership to have timed exits, providing their families financial security in the process while maintaining a total exit with a much higher valuation than in a traditional sale.

Small Business Development Group, Inc. (OTC: SBDG) is a holding company publicly traded on OTC Markets. SBDG has an active mandate to identify and acquire operating companies with a preference for those in the small to medium sized enterprise arena (SMBs and SMEs) based in North America, specifically those demonstrating modest but predictable growth and profitability over time. Ideal candidates for acquisition have an enterprise value between $2 million and $50 million with positive cash flows between $500 thousand and $5 million. SBDG's intent for all acquisitions is to affirm or establish sound business fundamentals and to drive revenue and profitability growth. The goal of SBDG is to develop and align portfolio companies into high performance industry verticals and deliver additional value for its stakeholders.

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