You don’t know when (precisely) and you don’t know why (exactly) and you usually don’t even want to think about it but someday your business will transition from you to some other owner. So that transition is on the horizon. Is there a plan for how that might occur? A plan for a plan? Or is your business next year’s or next decade’s Puget Sound Business Journal headline about another business failing or going through a fire sale, in other words “biting the dust” for lack of planning.
A few years ago, Laird Norton Wealth Management conducted a survey of family business owners (Family to Family 2007: The Laird Norton Wealth Management Family Business Survey), where we learned that over 30 percent of family businesses had no succession plan, even though more than 60 percent of their majority owners were over age 55. So if you don’t have a succession plan in your business you are certainly not alone.
I’m not raising this topic to berate those who don’t have succession plans or even to explore or explain why they don’t have them. Today, I want to talk about one way to think about a succession plan.
You don’t have time, right? You spend all of your time running the business, your business, your baby… Then you can’t afford to neglect a key element of the value of your business.
Prospective investors or buyers only want businesses that they perceive have value – and will continue to have value after the current leader is no longer running it. Lenders want to engage only with businesses that can be expected to produce returns to fund repayment. Valuation experts look at many factors determining the value of a business but most valuation methodologies are directed at determining the returns that a business can be expected to generate for its owners in the future. A capable loyal workforce, solid customer base, and tight relationships with key vendors all contribute to expectations of future profit. All are elements of business that can’t be taken for granted during times of transition.
To current and prospective employees, business partners, customers, lenders, and even key vendors, a plan for the orderly succession of the businesses’ owners is a plan that is designed to keep the important relationships that those key players have with your business strong, continuous, and secure. So developing a succession plan is actually an investment in the value of your business. It’s really just another aspect of running your business, and that’s what you spend all of your time on anyway.
And you thought we were going to mention your life goals and the financial and personal needs of you and your family – we will, someday, but all are tied to that transition that’s on the horizon.