When Does Succession Start?

When Does Succession Start?

Building a business you know you will some day want to exit by selling, passing over control, or reducing your ownership shares, is easier when you have built the business to go in that direction. But, for most small business owners, including myself, that was not the initial goal. When we started our businesses, we were focused on the expertise we had and the product/service we knew we could sell, plus all the 'stuff' we had to learn to be a business owner. Most small business owners did not go into business with a business degree. If you were lucky, you had family members that owned a business, or support systems that helped you learn the ropes of owning your own business.

When is it Too Early to Focus on Exiting?

Adam Hayes, in an article on Investopedia, wrote, "Ideally, an entrepreneur will develop an exit strategy in their initial business plan before actually going into business." According to Hayes, it is never too early to start this process and I agree.

In most training used to build a new business owner, the vision is usually set for a few years out, but not to the end. Setting 1-year, 3-year, 5-year and maybe even 10-year goals for the business helps the owner identify what needs to be done to get to those goals. Without a plan that includes a goal of exiting, the owner's future vision does not address the challenges that will make it difficult or impossible to exit, until it is too late to easily do. Not knowing what must be in place to exit the business may result in not being able to get what you think your business is worth, or maybe not being able to sell it at all. For instance:

I knew a young couple that were to take over his parents' farm. The couple lived on the farm with no costs to them and worked on the farm for no pay. The parents wanted them working on the farm so they knew the ins and outs of how the farm operated.

On top of all their work at the farm the young couple were required to also have outside jobs for savings and spending money. As they would inherit the farm, the parents knew they were going to be well taken care of in the future.

It was great that the parents knew that the next generation (or next owner) needed to understand the farm operations. It was not good that they did not focus at all on how to manage all aspects of the business, including the financials and the timeline for their exit. Not knowing how long they were going to be in this transition state - not owning, but running - not earning, but contributing - the young couple left the farm to the parents and set out to make their life another way, leaving the aging parents to wonder what their own exit would now look like.

What To Focus On?

There are many moving parts in the transition of a business. The one most people like to focus on is the value of the business; "How much can I sell it for?" By focusing on the fundamental areas of good business management, you will create a business that is more valuable and easier to let go of. Let's look at just the roles and responsibilities you need to understand, to be able to easily transition to the next owner.

Roles and Responsibilities

If you are the only person in your business, and you 'ARE' the product, it is very hard to transition your business to another person. Start by evaluating all your roles, responsibilities, and tasks in the business. I know when I did this exercise for my first business, I found I had 40 roles in my business, 32 of which were mine, with 3-12 responsibilities in each. Each responsibility had numerous tasks, putting my duties, as the owner, in the thousands.

If you want to be able to transition out of your role as the owner of the business, someone else (or several other people) needs to be able to easily take over all your roles. If you own 32 roles, every role, their responsibilities, and all the thousands of tasks you are responsible for must be easily transferred to the next person, and that does not happen over night. In fact, my expectation for most business owners is that this transition within your business will take 2 to 5 years. If you need to stay on to help the next owner, you can add on 1 or 2 years more.

Picture yourself as someone wanting to take over your business. What roles would a new owner easily be able to take on. What would they need to know? What type of help would they need to have? Where would you get this knowledge and support?

Start by documenting everything you do in your roles and those of your employees and contractors. This is easier done when you (or your people) are going through the tasks. There should be written documents and procedures covering all the roles. You can use images or video to cover specific tasks, like how to set up a blog, turn off the alarm, or back up a computer.

Evaluate what everyone is doing in the business. It is sometimes surprising to many owners to know that their employees, or contractors, are taking on other tasks, because they saw a need. Sometimes tasks are being ignored because people did not know it was their responsibility. Look for the gaps and overlaps.

Determine what of your work other people in your business can take on, and who else you may need. Your business is more valuable if the roles are known and understood by all. This adds continuity for the next owner. If a new owner comes in, they can ask questions and easily find out how to manage any part of the business because it is documented and understood by those still in the business.

Other Benefits

If you have a team that can understand the roles in the business and they are able to perceive oncoming challenges, make decisions, and prepare for changes, you, as the owner, don't have to manage every aspect of your business. You don't need to be the only one aware of industry trends, stronger competition, or last-minute changes. With more eyes on the details of the operations, you have more room to move. You will be more competitive and more agile to change. This makes your business more valuable to the person that you want to sell it to.

Want to know how ready you are in 10 areas of your business?

Take this free EXIT Readiness Assessment.

https://blitz-exitplan.scoreapp.com

This article is 100% original content – The articles you read in “Thoughts of Change” are 100% created by Barb Stuhlemmer, not by AI.