If you are a business owner stuck between the excitement of sunny winters in paradise and complete dread over the issues your retirement will have on your company, you are not alone. According to a recent study by Wilmington Trust, 47 percent of businesses with a proprietor over the age of 65 do not have a succession plan.
Perhaps you’ve delayed planning in fear of having to decide what you’ll do next. Maybe you’re unsure of who has the skills to run your company or take over those key relationships you have built over a lifetime. Should you hand it down to your children or sell it to management, employees, or an outside party? Then there is the question of how to pay for your retirement with all your wealth tied up in your business. Though it may seem daunting, it’s never too late to begin your succession planning.
Preparing your firm to thrive for generations to come won’t be as challenging as you may think, if you focus on these six simple tips.
- Start early. Executing a smooth transition is much harder as you get older. Ideally, you should start planning decades before your departure and evolve your succession plan over the years as needed. Get out in front of the key skill sets required such as sales, management, compliance, finance and reporting. Be sure to build succession planning into your long-term strategic plan. Use your network of lawyers, financial advisers, accountants and consultants who specialize in succession planning to help you map out a transition that works for you.
- Talent, talent, talent. By far the most important element to get right is talent. First hire for the right roles, then train employees to perform across multiple functions, provide ongoing mentorship so that they can round out their skillsets, give them real opportunity to shine and promote them up the organization. Ultimately, kingdoms fail and meritocracies work. Giving your employees the freedom to learn from their mistakes will help them find success when you’re out of the picture.
- Address the key elements in a written agreement. This agreement can determine the fate of your firm. For example, does the agreement have a buy-sell clause? Is there a way to value the company? Are you taking all your liabilities into account? Are you confident that the next generation can afford or even wants to buy equity in the firm? Having everything spelled out and bringing the next generation into the fold well before the transition takes place is important. It can also help encourage your successors to save up and transition into an ownership role. You may also consider having a set schedule for selling at certain ages to ensure that you are not perceived as holding on for too long and planning is easier for others.
- Be transparent. All key employees and management in the firm should know what the succession plan is. It should be laid out in your firm’s larger strategic plan. Moreover, you need to adhere to it. If a founder does not begin to transition ownership and control, key people may start to leave and the value of the firm will drop. Consider hiring an outside search firm to lay out the criteria for the future leader so that there is more independence and less friction between you and potential successors. Think “no surprises,” and don’t make succession planning a taboo topic to discuss.
- Plan for the unexpected. What would happen to your firm in the event of a premature death? How would the firm pay for your ownership? Do you have key man or business life insurance? What if your COO left tomorrow? What if the person you thought you were going to transition the firm to left? All these questions need to be clearly planned for, so there is a playbook to work from should any of these situations occur. Without a plan, families could be stuck with the huge burden of trying to unravel the complexities of your firm and its financials. Treat this as a will for your company that will allow you to rest easy and give everyone their marching orders in the event of an unexpected succession.
- When it’s time, let go. One of your biggest challenges is going to be to loosen your grip and let others take over. Instead, enjoy your retirement, and if you want to spend 50 percent of your time working, then incorporate that into the expectations. Don’t hold on to the decision-making or ownership, transition it down. For many founders, their company is their baby, but you need to let it grow up without you.
With this proactive approach to succession planning, you will create options for your firm and ease into the next chapter of your life relaxed and proud — knowing that you have done what you need to do to pop up your beach umbrella, pull back your chair and enjoy the retirement of your dreams.