A lot of self-employed individuals never give a thought to succession or sale of their business. Often sacrificing resources, personal relationships and health to grow a successful consultancy or practice, the end of the business arrives with little fan fare and, unfortunately, often without their families by their side. It doesn’t have to be this way!
I’m using a parent – child analogy to illustrate the 7 keys. Even if you are not a parent, at one time in your life, you had parents or caregivers who looked after you and raised you until you become 18. The “coming of age” is a similar process to starting up a business and growing it to the point of “18” – with grown up responsibilities.
7 Keys for Succession or Sale:
- Prepare for the experience from day 1. Keeping in mind that one day you will not be around, you have a vested interest in getting your business to the point where it can run without you. Just as newborn babies enter the world, fully dependent on their caregivers for survival, so too is your newborn business fully dependent on you. As entrepreneurs, self-employed or otherwise, by treating our business as an asset that can appreciate in value and become an asset we will sell, we hold different beliefs, we take different actions and we generate different results. Consulting and service businesses can be sold!
- Make yourself dispensable. My Mom would often quote de Gaulle, “the graveyard is full of indispensable men” whenever I thought that I was too important to a project, task, employer or client. These few words are powerful reminders of our mortality. The sooner we get our children skilled and capable, the better off they’ll be if we are no longer in their lives. The same is true for our business and our employees. The shorter the timeline to get systems in our business so it can be run by employees independently of the founder, the less the business is at risk should the founder be unable to contribute. Then you can take vacations or spend your time as you enjoy.
- Diversify. Small businesses are riskier than larger ones because they have too many eggs in one basket: dependent on one employee, customers in one market (industry, geography, etc.), or too dependent on one supplier. Diversify revenue streams, markets you serve, suppliers you use, employees you hire, etc. Diversification is one of the keys to building value and attracting better offers.
- Shine up your Crystal Ball. Your crystal ball may be rusty, but getting a successor or potential buyer excited about the future of the business is critical. Excited buyers will pay more for the business and successors are much more likely to be motivated in taking over the business when they see a bright future. Encourage them to take the business to new heights, point out areas where you see opportunities for more profit and fun with the business, invite their suggestions for growing the business.
- Accept that your way is only ONE way, not THE way or the RIGHT way. When you recruit or identify potential successors or potential purchasers, delegate accountability to them in decision making and achieving goals for the business. This is a significant way to remove yourself from day to day operational decisions while maintaining your focus on strategic decisions to move the business forward.
- Plan the Transition Experience. Transition from one owner to another is an experience rather than an event. Many transitions fail when done too quickly, especially if the organizations are small without sufficient resources to invest right away. Over time, best practices, client specific knowledge, supplier details and details about “how we do things around here” are transferred to the new owners.
- Develop a Marketing Plan. You have marketing strategies, collateral and plans for the products and services you sell in our business. Your business itself is another “product” you are selling. It needs its own marketing plan – complete with lead generation strategies to attract the ideal buyer, an efficient and effective sales process, aids such as brochures, financial information, and business at a glance overviews, legal agreements to take you from letter of intent through to offer and due diligence phases. Even when successors are internal, you need a marketing plan and a pitch to close the deal.
Book your time to chat with our advisors about building your succession and business exit plan.
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