Key Steps for Smooth Succession and Exit Planning



Thinking about the health and longevity of your business, ask yourself the following question: Does my business work like a mover or an egg beater? That is, is your business a well-oiled machine with every part performing exactly as it should with minimal input? Or, do you have to fight manually with great force to achieve your business goals and deliverables?

While the latter can be exciting and fulfilling in the short term, an engine is much more effective, especially if you hope to eventually sell or transfer your business. It’s never too early to start planning for succession. You must continually ask yourself if your business could operate without you at the helm, and if not, what you should be doing to make it possible. Even if you don’t plan to sell your business, knowing these answers could help you plan for emergencies and unforeseeable situations that would require you to step away from your business.

Whether you plan to keep your business in the family, want to merge into a Fortune 500 company, or want a solid valuation, you’ll need a strategy, and that strategy starts with knowing your business inside and out, including understood how each part of the machine works together. I recommend that all businesses, regardless of size or years of operation, ask themselves the following questions each year to prepare for next steps and succession planning.

What does it take to move the business forward?

What is involved in the day-to-day operations of your business? Who are the key players and how do they do their job? What tools are needed for the job to happen? Don’t forget to take a look at your processes, resources and business relationships as well.

Is all money owed recorded?

Do you have all liabilities recorded with backup documentation? Make sure you keep track of owner contributions, personal loans, lines of credit, and notes receivable, including internally.

How healthy is employee culture?

Assess the health of your employees’ culture by asking the following questions:

  • Does each employee have a clear role with a clear job description?
  • Are there any employees under contract?
  • Is the employee manual up-to-date, compliant, easily accessible and accepted by all?
  • Are there clear policies regarding fringe benefits including profit sharing, power take-off, pay increases, etc. ?

Is the leadership in harmony?

If there are multiple managers or owners, it is essential that everyone is on the same page. Consider the following:

  • Are there any recorded or unrecorded accumulated distributions to partners?
  • Do you have a ceiling table with up-to-date information?

What do the numbers say?

It’s no surprise that succession planning involves good books of account and an in-depth analysis of the profitability of the business, but many business owners get a little anxious when it comes to diving deep into their business. books. Remember, it’s okay to have messy books, but updating them is one of the first steps in a successful succession. To get started, ask yourself:

  • Have I filed income tax returns for previous years?
  • Are my books clean and reconciled? Remember that the assessment is data dependent. Sloppy books can cost you tens of thousands of dollars in an appraisal, but can easily be cleaned up ahead of time.
  • Have I analyzed my margins? Income and profit are only part of the equation! Your CFO or financial advisor should be able to help you review all of the relevant KPIs.

Use the above questions as a checklist. It’s a good place to start! What is less simple, but just as important, is to articulate the “why” of your business. Many estates fail because company goals and leaders’ motivations are unclear.

What is your motivation ?

Motivation, or corporate culture, encompasses leadership styles, the business environment, unspoken expectations, expressions of gratitude, philanthropy, and growth mindsets, among others. In addition to the tangible and practical elements listed above, make sure the following are clear and realistic:

  • Your mission statement
  • Your core values
  • Your leadership principles

If there are places the business could do better, make those adjustments now.

Whether you are building to sell or planning to work as long as possible, it’s important for every business to have a succession plan or exit strategy. Not only does this help prepare for the inevitable, it ensures that your business and its culture thrives along the way.


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