5 ways to get your business ready for succession
Succession planning best practices today can limit conflict tomorrow
Just like preparing your personal home for sale, business owners must also take fundamental steps to get their companies in shape to be appealing and ready for sale to potential buyers.
Where to begin your succession planning process
Regardless of your personal goals, there are some key things every business owner must address in order to be ready for eventual business transition. How you address them depends on your intentions, but you do need to consider all of them, repeatedly. The business landscape changes every three to five years, and your company’s succession plan needs to keep pace. Review the following best practices on a regular basis, and you will be in better position to act strategically and react intentionally.
1. Get your financials and data in order
By assessing everything, including sales revenue, debt, assets, earnings before interest, taxes, depreciation and amortization (EBITDA), tax liabilities and more, you are positioned to understand the value of your business and profitability trajectory, so you can accurately communicate that to potential buyers. To help you get there, consider completing sell-side due diligence to minimize surprises and maximize transaction value. Likewise, update critical company data, like client information, sales volume, inventory levels, supplier information and more. This preparation work will provide you a clear picture of your business and could reveal risks and challenges to be remedied before transition.
Knowing your desired endgame will allow you to effectively focus on improvements. For example, do you need to maximize EBITDA to achieve a better valuation? A mindful succession advisor can help you understand what matters most based on your personal goals and market trends.
2. Know your market
Understanding where your business fits in its industry and the economic landscape can help you talk about the future value of your company to potential buyers. For instance, if you’re a food manufacturer established in the Northeast that sells product exclusively in that region, but you’ve recently tested sales in the Southeast and found that there is opportunity to increase reach in that new geography, that marketplace information could lure buyers to consider your business given the future value of your expanded product sales. Knowing your current marketplace, along with future opportunities, can positively position you with buyers.
3. Vet a successor
Who will lead your business after you leave? Is this person ready to take on the responsibility? Will others in the company support this decision? Getting some clarity on who your successor will be and gauging how this will play out in your business is important to your succession efforts, as well as the future of the company.
4. Spruce things up
It may sound like a very basic area to focus on, but if your business is being sold to a buyer who intends to take possession of your physical company space, fresh paint, general cleaning and simple remodeling can bring shine and appeal to your business. It demonstrates pride and care in the business, something that could be attractive to your buyer. It also shows employees that you are invested in their futures, even as you plan to exit. This is true even if you keep your facilities in good shape, as a matter of course. Keep in mind, however, that superficial improvements inconsistent with your culture are transparent to buyers and employees.
5. Pick the right team
Over the history of your business, you may have had a variety of advisors providing everything from accounting to legal consultation. During your business succession planning process, you’ll need these advisors and others to work in a holistic way and not be siloed or disconnected from one another. Select team members who understand the importance of that and communicate frequently with you and one another. In addition, look for advisors who understand your business’ industry. They’ll know the industry-specific opportunities, the types of strategic and financial buyers and more. You’ll need this deep expertise and experience to guide you through the many nuances of succession.
By establishing your initial goals and then focusing on some core actions, you can be in control of your business succession plan. Early planning gives you the time for proper assessment, the opportunity to address challenges and risks and the ability to react to market or personal changes with confidence. The right time is right now to get your company ready for its next chapter.