Planning and setting direction for the future of your business is integral to professional management. As a result, succession planning and sustainability are a natural part of implementing the DOC model.
Even though many business owners/founders produce a forward-looking vision for their company, fears or uncertainties can hold back the process of planning for a successful exit. If you don't figure out your plans for a successful transition, someone else will do it for you.
Even if you aren't ready for any near-term leadership transition, here are 4 tips to consider so that you can leave your company on your terms.
1. Don't delay the planning process
Planning as early as possible helps you put the long-term health of the company first. It also helps you leave your business with the legacy you wanted.
"It it wise to begin planning early, so that you can shape the expectations of all involved, from [leaders] and employees to spouses and children," says Clay Mathile in his book, Run Your Business, Don't Let It Run You. "Having a succession plan and exit strategy is a spart of your responsibility; it is a part of your accountability; and it is the thoughtful, responsible, respectful thing to do," says Clay.
2. Utilize your board
Your outside board gives you the experience and broad approach you need for planning. "Every business has the potential to survive for generations. To support this potential, you want to reach out to expert help in shaping a succession plan and building an exit plan," says Clay.
There can be many stakeholders involved when an owner exits the business; a general rule of thumb is that the earlier a team can be pulled together for succession planning purposes, the better. Whatever expert resources are used, take advantage of their experience and honest feedback. Many times, especially in a family business setting, your board will give you the advice you need to hear.
3. Be aware of your sellability factors
In Bo Burlingham's book, Finish Big: How Great Entrepreneurs Exit Their Companies on Top, he shares various ways investors and owners have measured and assessed the "sellability" of a business. While many different means of evaluation exist (John Warrillow's and other programs), Bo shares 8 markers that can help business owners see their companies more objectively. These 8 factors can also help to point them in the direction they want to go in:
- Financial performance. "Small companies carry a risk simply by virtue of their relative size," writes Bo.
- Growth potential. The ability for a company to be able to scale is one measure of the company's value.
- Overdependence. Is the company over-reliant on one customer or supplier? The key here is avoiding risk.
- Cash flow. Does the company have a strong, proven ability to finance its own growth?
- Recurring revenue. Recurring revenue provides assurance of future sales.
- Unique value proposition. The greater your true competitive advantage, the less risky it is for investors or the next generation.
- Strength of the management team. "The better your company can function without you, the more sellable it will be," writes Bo.
The more an entrepreneur can be aware of these factors, the easier it will be to sell the business, eventually, if desired by the owner. "[The business] will become better, stronger, and more durable in the process," adds Bo.
4. Share your succession plans
The formality of putting succession plans on paper—and sharing them—encourages greater transparency and builds trust with employees. After all, your most engaged employees will want to know there is a plan in place that supports sustainability. Ultmately, more transparency means less ambiguity, and it’s a leader's role to lessen any ambiguity with employees because it can lead to unnecessary frustration and stress.
Lift Up Practical Ways to Support the Long-Term Sustainability of Your Company
As Clay and Bo argue, no matter where you are on your entrepreneurial journey, it's never too soon to have an exit strategy. Many times, fears or uncertainties can hold back business owners and leaders from working on succession planning together. Hear both Bo and Clay at #LIFT2017, where you'll also have time to work on ways to align your current strategy with what you want for the future of your business. Learn more about #LIFT2017 below.