For many business owners, the exit strategy from their business consists of finding a buyer who is ready, willing and able to purchase their business under terms acceptable to both parties. This enables the seller to move into a new phase of life where there is an end of responsibilities associated with the business and the beginning of different pursuits away from it.
However, for some owners, their exit strategy consists of executing a succession plan where they find a replacement that will be able to take the reins of the company and keep it pointed in the right direction. This strategy will mean less time at the office and more time spent away but not a complete separation from their business.
Successors can be beneficial because they are usually eager to make their mark on the business. Often, they can see upcoming trends more clearly. When you combine their energy and insight, the new leader may even be positioned to grow the company.
However, finding the right successor can be a challenge. It begins with the outgoing owner figuring out what kind of person is best for the company, not themselves.
This is no easy task. In fact, many experts recommend against trying to find a clone because when the replacement ends up in charge, it will be at a future date where different talents may be required.
Their next step should be to survey available people from both within and outside the company. The prospective replacements’ skill sets not only need to be examined but also their willingness to take the job.
Once the chosen candidate is identified, the owner needs to determine the additional talents the replacement needs and come up with a plan to ensure they are developed. When the successor is close to being ready, it is often a good idea to give the “understudy” a “dress rehearsal”. For some owners, that can mean taking an extended vacation or beginning to work part-time. For the exiting owner, they may still need to call the office every day, but between their calls, the successor will be making all the decisions.
With this exit strategy, while the outgoing owner is resolving some of his work-related issues, he may also unfortunately be creating some new problems. The exiting owner needs to be aware of the sensitivities of those who were not chosen. These employees may choose to leave the company or perhaps worse, stay and become trouble-making malcontents.
Sometimes succession isn’t the best solution when it comes to a family run business. An exaggerated example is the humorous commercial on television where “Chip” is a newly appointed Chief Executive Officer of a large company simply because he is the outgoing CEO’s son. The results are disastrous.
I am not suggesting that this happens frequently in real life, but unfortunately, we’ve all seen similar situations where it has. In some of these situations, the successor hasn’t been qualified while in others, they may have been qualified, but just not truly interested. The results are usually the same.
Think about how the decision will be compounded if the owner has two or more children involved in the business. The owner’s first decision of choosing who will take over the business is the “easiest” – if you can call it that? The owner must select the child who has most consistently exceeded company goals, who has been the most innovative, who works better with employees, customers and vendors, who has more of the skills required as a CEO?
Now comes the harder part. It’s one thing to pass over a non-family member. It’s another when you have to choose one child over another.
Regardless of which path is followed, the decisions that are made can significantly affect both the life of the business and the outgoing owner so they need to consider all the consequences.
Do you have small business questions you would like answered about this article or others? Please visit www.VRWindsor.com or call 519-903-7807.
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.
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