Training your Business Successor is crucial in ensuring a smooth transition of ownership and leadership. The following are critical elements to consider when preparing your Business Successor…

As a business owner, your future exit is a significant event. That's why we publish the "Exitreadiness® Checklist" annually to assist you in planning.

Sarah thought she had a great sell strategy in place until it all blew up at the deal table. She was willing to stay on for a year or two and “earn-out” a percentage of the sale price, but she was not willing to play the role of a lender in the self-financing part of the deal, and she absolutely expected an offer of a higher sale price.

A business book that I read the book when it was first published, and find helpful to revisit regularly, is Execution: The Discipline of Getting Things Done by Larry Bossidy and Ram Charan. The authors’ definition of “execution” is particularly insightful and helpful when considering how an owner should build a business that is transferable, and in planning their eventual exit from the business

“Fundamentally, execution is the discipline of systematically exposing reality and acting on it.”

There have been not a few surveys of small business owners conducted that revealed a majority of the owners polled believed they needed a strategic plan for their eventual exit. Over 75% indicated they wanted to sell in the next 10 years, 90+% knew they needed a plan, while only about 20% had a written plan for what is inevitable…their eventual exit from their business.

So, why the procrastination? Well, we’ve observed the following reasons for putting it off, or not planning at all. And frankly, the reasons are understandable.

Up until a successor takes over as an owner, they have typically only ever been an employee.  Therefore, it is critical to help them begin adopting an Owner’s Mindset prior to handing over the keys.

Owners and employees generally think differently.  I remember when I first became the owner of a company.  I co-owned a restaurant development company, where developed our own restaurant chain and also developed a territory for a national franchise.

Can you leave your business for a month, sit on the beach and leave your phone in the beach bag?  If so, you have attained what few business owners do – a business that can run without you!  Aside from sound cash flow, the creation of a management team is the most significant driver of business value.  When the time comes for you to leave for good, a buyer wants your team, not you!  If you can’t yet take that month, here are a few simple thoughts…

Often business owners are exhorted to build their business with "the end", or their eventual exit in mind.  This can be a good idea in that it lends toward building your business to have "transferable value", or value that someone else will want to buy and own when you're ready to leave.  Value apart from you the owner.

In 1975, Gary Dahl created the perfect pet - the Pet Rock.  In six short months, he sold 1 million Pet Rocks, then the fad died.  You see, the Pet Rock did not really solve a customer’s problem – it was just a cute idea.  On the other hand, the over-the-counter pain killer market exceeds $ 50 billion annually.  The point is people will pay to remove or alleviate pain from their lives, while “Pet Rock” sales fade away. 

As business owners, we want to serve clients well, generate incomes for ourselves and our employees and hopefully build a company that has real value when we decide to leave.

We refer to it in the exit planning trade as the "perpetual five-year exit plan".  When asking a business owner when they plan to exit their business, the following is a fairly common response:  "Not sure but probably about five years from now..."  And it’s not unusual to get the same response year after year from the same owner.  There can be numerous and varied reasons for the response, but a lack of planning is often primary. 

Our fictional business owner, Baby Boomer Jane Doe, is like most owners in that her business is her largest asset and will play a central role in achieving future financial security, goals, and dreams.  Jane has been in business approximately 25 years and, as a result of the steady stream of business revenue, she has experienced a very comfortable lifestyle that includes two homes, private education for the children, annual vacations, and plenty of discretionary income.  

Several years ago, I did a cross-country trip with my family.  We laid out a rough plan of what we wanted to see, how long it’d take to get from Point A to B to C, and most importantly, what we wanted to eat!

When we hit the road, I did not drive looking primarily in the rear-view mirror, with an occasional glance at the gas gauge and the road signs, but looked ahead and tweaked the plan.   Yet, that is often how business owners run their businesses;   this year’s plan can often be “let’s do what we did last year – just more of it.”  We look at whether we have cash in the bank and check our financial statements from last month and compare how we are doing against last year.

“Eat well and exercise!”

Just about everyone over 30 has heard this advice from someone interested in our health, usually a doctor.  We all know that we should begin by doing SOMETHING, yet we wind up not really doing anything.  We know deep inside that if we want to live long and prosper, taking a few painful steps will have long-term pay-offs, but all too often those first few steps never happen.

Five years ago we met with the owner of a successful business who told us he wanted to exit in the next few years. When asked if he knew who he wanted to sell the business to, he responded: “I guess I will sell to a third-party buyer”. He didn’t at all seem excited about that, so with further questioning, we learned that he was moving ahead under the assumption that a sale to a third-party was his only option.

Business owners frequently approach exit planning much like a new fitness routine. They know it is necessary, but it always seems to be something that can be put off until tomorrow.