Do you know someone who has sold or transitioned their company to the next generation, retired and never looked back? How did they do this successfully when so many others fail? Two words… succession planning.
What is succession planning?
If you search succession planning you may come up with a number of definitions.
Investopedia defines succession planning as: “A strategy for passing each key leadership role within a company to someone else in such a way that the company continues to operate after the incumbent leader is no longer in control. Succession planning ensures that businesses continue to run smoothly after the business’s most important people move on to new opportunities, retire or pass away.”
At Lurie, succession planning is much more than this. We believe in order for a succession plan to be truly successful it must focus on three goals:
- Maximizing the value of your business
- Ensuring you are financially prepared for life after the transition
- Planning for what you will do afterwards
Whether it’s called succession planning, exit planning, or transition planning, the end goal is the same, executing a successful transition that leaves all parties involved in a better place than they were before.
Why is succession planning important?
For many owners, their business represents their single largest asset. However, most have not developed a plan to successfully transfer their business and harvest the value they have created. According to the 2017 State of Owner Readiness Survey for the Twin Cities Metro Area, conducted by the Exit Planning Institute:
- 99% of business owners believe having an exit plan is important
- 79% of the business owners have no written exit plan
- 48% of business owners have done no planning whatsoever
- 94% have no written personal plan
Having a succession plan greatly increases the chances of a successful transition.
Why transitions fail?
Transitions can fail for business, financial and personal reasons. For example:
- Lack of transferability
- Poor business systems
- No contingency planning
Put another way, can your business effectively run without you? What would happen if you became disabled and were unable to run the business?
- Insufficient financial planning
- Lack of life-after transition planning
- Poor communication with family members and key stakeholders
In other words, do you know how much money you need to live the life you want to live? Do you know what you will do with your time?
A well-developed succession plan will address all of these areas and more.
When should succession planning begin?
Every business owner should see their eventual exit as a key step in the entrepreneurial journey and start planning for it even if their company is still in its infancy. In the real world, often, this doesn’t happen. The day to day chaos and responsibilities of running a business make it difficult for the owner to focus on their eventual exit. We recommend the succession planning process begin two to five years prior to the planned transition.
Lurie’s succession planning services
We at Lurie pride ourselves in serving our clients from start-up through succession. Our advisors have a combined 90 years of experience helping owners prepare to successfully transition their business. For additional information regarding our succession planning services please contact: