70% of Family businesses do NOT Pass successfully to the second generation.
Unfortunately, all too many businesses that have prepared a Business Plan do not incorporate the critical element of a Succession Plan. Without exception, each of us will exit our business at some point, either on a time line we have established or by circumstances beyond our control. There are several key elements that must be addressed when trying to put a succession plan in place:
When? How much longer do you want to run the business yourself? Is there a trigger event such as when you want to retire or when a successor such as a child or key employee will be ready and able to take over?
What’s next for you? Will you completely exit the business and turn it over to your successor or do you want to still be involved? Will you start a new business or enjoy time with the family?
Who will be the successor? Will you sell to a new owner or turn things over to a family member or key employee?
Interesting enough, many of the actions taken within a business to get it ready to transition to a new owner are also the same actions that would be taken to make the business more efficient, more profitable, and give the present owner more personal time to pursue other interests. Summit can help with many of those elements including:
Running a successful business requires keeping score of what is happening. This includes reviewing standard financial reports, such as the Profit and Loss Statements, Balance Sheet, and Cash Flow Statements. However, it should also include more detailed KPIs that indicate which products or services are more profitable, how you are performing with respect to each client/customer, what the trends are related to these, and other pertinent variables. A regular review of these metrics with the team will help drive the business to greater success for the current owner, and when ready, allow a potential successor to also evaluate the business. Keeping the perspective of driving the numbers to increase the “value” will further enhance the benefit to the owner when ready for transition.
Designing and implementing effective business systems that can be performed without the daily intervention of the owner can result in consistent and improved product/service quality. This also allows team members to take on more responsibility for various areas of production. Systems will include things such as Point of Sale (POS System), accounting, Operations Manual (outlining details of all processes within the organization), Personnel Manual (to be sure team members are aware of what is expected of them and addresses legal issues such as equal opportunity), Job Descriptions (which cover specific positional expectations), and other documentation to help control each area of the business. The right systems can improve quality and consistency while reducing operating costs. Systems can also allow someone to view the business from the outside as a potential new owner and significantly increase the value to both the new and existing owner.
Knowing how to generate new clients/customers and maintain existing clients/customers is critical to the short and long term success of a business. Having a written set of procedures outlining the various marketing strategies used with metrics showing the success or lack thereof per strategy is important to the present owner to gauge the return on this investment. A potential future owner would also find this invaluable to document that the marketing is based on a plan rather than the specific relationships with the owner/manager.
Having an overall plan for the business will keep team members focused on what is important for the business and their own role within it. Too often, businesses fall into the habit of being reactive rather than pro-active to what is being done. Goals should be established for all key team members to achieve what is needed to move the business forward. This helps keep team members engaged in their work and impacts the overall business performance. Productivity will continue to improve through greater focus, which is important both for the existing owner and a successor when the time is right.
A healthy and happy organization will better collect and process the necessary information to best utilize the team and assets of the organization. This would include such things as organizational communications, decision making and information management. All of these contribute both to the immediate success of the organization and an increase in value at the time of transition.
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