What's at Risk When You Don't Make a Business Succession Plan?

business succession planning

APRIL WEATHERSTON
HNI Director of Insurance Services

If your business made it out of the Great Recession, congratulations. No doubt you had to make a lot of sacrifices to get through some lean years.

For many organizations, survival was quarter to quarter and month to month. (With hope, it wasn't week to week!) It's now time for business leaders to again take the long view, and that includes succession planning.

Creating a business succession plan is a critical activity. The more planning you do now for your business, the more graceful and profitable your exit will be in the future. And who doesn't want to make things easier for themselves in the twilight of a successful career?

There's a lot at risk if your business succession plan fails. (We probably don't have to remind you; we're sure it's kept you up at night more than once!) We're not into scare tactics, but consider these very real problems should you wait too long to start setting the stage for your farewell:

Risk No. 1: Your Business Isn't Valued Properly

A business that isn't valued properly will have one of two problems. If it's undervalued, someone other than you (the owner) is getting a ripping deal. If it's overvalued, you (the owner) is getting brushed off by buyers who balk at your price. If you don't work on increasing the value of your business now, get ready for disappointment when the time comes to sell.

Risk No. 2: You Pick the Wrong Buyer for Your Business

Choosing the wrong buyer could be a painful experience fiscally — and emotionally, especially if you're transitioning from family ownership. Finding an external buyer, selling to an internal management group, or setting up an employee stock ownership plan (ESOP) all take a lot of legwork. Waiting until the 11th hour to find a buyer could force you to make a decision that you'll come to regret.

Risk No. 3: You Walk into the Deal Underprepared

If you're not prepared, you don't have all the information to make the best decisions. You don't know what and how much to tell your stakeholders about the transition. What's more, your estimation of the succession timeline likely is flawed and could be bad news for you as you're trying to get out of business and for the folks who are taking over.

Risk No. 4: You Haven't Worked Through Worst-Case Scenarios

Even if you think a surprise retirement party sounds like fun, we're sure you don't want any surprises when it comes to succession for your business. Failure to explore how you might react to the loss of a key person or what happens if there's a conflict between owners could derail an otherwise smooth process. Buy-sell agreements and whether your business is transferrable also are scenarios that could muck up the transition.

Without a doubt, there's a lot of work to be done before you can hand off your business. The good news is that you can walk into that hand-off in control of your destiny, and the destiny of your company, if you start working today on your business succession plan.