There comes a time when the founder of a business must confront the inevitable transition of ownership and management of their company to others. With the right preparation, business owners can ensure a seamless and efficient process, and avoid the risks that often come with transition.
Here is a checklist to address issues when transitioning to new management:
Assess yourself. Do you really want to leave your business or just “throttle back” so you can stay involved while also pursuing other interests?
Set objectives. Consider and define your objectives to guide the process. It is important to understand that there will be conflicts with your objectives. You may have to determine priorities and make compromises.
Integrate your plans. Think like an owner-investor and work with your personal financial adviser to consider your business succession strategy as part of your personal financial and estate plans.
Plan ahead. Succession is often driven by factors beyond your control, such as health and family circumstances, changes in competitive dynamics in your industry and availability of capital. Start developing your plan three to five years ahead of when you think you will implement it.
Build a team. Make sure you have the right players on the field in your business, including experienced advisers with the right expertise and a focus on working together for your benefit.
Make yourself expendable. Bring members of your team into key relationships – with customers, suppliers, bankers and others – so they can keep things on track in your absence.
Reduce risk. Assess and address your risks, particularly quality financial information. Risk reduces valuation, and the succession or sale process will spotlight every risk in the business.
Diversify your risk. Owners tend to reinvest profits in the business, but it is important to remember capital can be invested in other assets and loaned back to the business if needed.
Prepare for your new full-time job. Managing the transition or exit process will require much of your time, so ensure that the business can run well when you are away for several days or weeks. Be ready to delegate.
Prepare for non-business issues. Some of the most vexing issues have nothing to do with the business and everything to do with the people involved, particularly in a family business. Anticipate and prepare for these challenges.
Maintain confidentiality. Once markets learn that your business is in transition, customers and suppliers will be uncertain about the future of their relationship with your company, and competitors will seize the opportunity. Experienced advisers can help develop a plan to reduce this risk.
Know your buyer. Do your own due diligence and talk to others who have sold businesses to your buyer to learn from their experiences.
There is a lot to consider as you begin to work toward a succession plan or an exit from your business. The right knowledge and preparation will improve your business in many ways, which will make it better able to withstand disruption.