The last time I checked, 1 out of every 1 persons eventually retires — one way or the other! If you own a small business, it is crucial that you think about how you want your business to be handled when you are gone. Whether you want to work till you drop, sell out, or pass the baton to your children, it takes proactive planning well in advance to ensure maximum success.
After years working with small business owners, I've learned there are six common myths about succession planning:
- MYTH #1: “I’ve got time!”
You would think we would have figured out by now that we don’t live forever. Before you know it, months turn to years, and suddenly you have to make a bunch of decisions under stress because you waited too long. Don’t do it! NOW is the time to think about the long-term future of your business, not later!
- MYTH #2: "Everyone must get an equal piece of the pie."
Often in a family-run business, the children or other younger family members are engaged. In an attempt to ensure fairness and avoid family conflict, it is common for founders to fall into the trap of wanting to give everyone an equal share of the ownership. Your business is not simply an asset — it is a living, breathing entity requiring experienced leadership and a firm hand. Newsflash: Not every family member fits that description or is best for the business!
In succession planning the goal is not to avoid conflict — it is to ensure that the business has the greatest chance of ongoing success. That could mean that not everyone involved will be overjoyed with the result.
- MYTH #3: “When the teacher is ready, the student will appear.”
This happens when founder/owner fails to identify his or her successor early enough to clearly establish that person in the role. Training a successor doesn’t happen overnight and should involve a lengthy training process.
Be proactive in identifying the characteristics you feel will be necessary for success. Carefully evaluate family members before selecting a successor. In the end, the best interest of the business may require a non-family member in leadership. The key message here? Don’t wait!
- MYTH #4: “Ownership = Control”
Often business owners confuse ownership of the company with management control. These are not necessarily synonymous. Day-to-day management of decision-making does not always require ownership in the business.
For some, the thought of transferring ownership to a successor is threatening because they fear giving up control. This is a reasonable concern and one that a good succession plan can address.
- MYTH #5: “I’ll just cash out!”
Too often, business founders put all their eggs in one basket when it comes to their retirement. The business IS their retirement, and their plan is to sell out for maximum value, ride off into the sunset, and live happily ever after on the proceeds.
Unfortunately, most small business owners have an overinflated view of the value of their ‘baby’. They put their best energies into building their business for yours, so surely it’s worth millions, right? That's true only if there is a buyer who sees that much value, as well. Many times the business is built on the reputation of the owner/founder (they ARE the business), so the value is tied up in their own ability to continue bringing the business in. This can mean staying on board some time after the sale, helping train a replacement. So the ride into the sunset can be preceded by working for the new owner for a period of time.
Creating a business with real value that is attractive to a prospective buyer is not an easy task. It takes more than a ‘For Sale’ sign.
- Myth #6: “Not ‘til I’m done!”
Many business founders are so attached to their business that they simply refuse to consider a time when they must step back and hand the reins to someone else. They don’t want to face the fact that 100% of us retire, whether we want to or not. They wait until they are 'ready’ (which often means never) before giving it serious consideration.
Too many businesses fail following the loss of the founder, and a significant contributing factor is the lack of a sound succession plan. This is essential, so take action sooner rather than later!