For most entrepreneurs, starting a business is a labour of love. You pour everything into building your company from the ground up. Long nights, early mornings, and years of hard work and sacrifice.
But every founder needs an exit plan. One day, you’ll want to retire, pursue new ventures, or just take a permanent holiday.
The question begs:
What will happen to everything you worked so hard to build when that day comes?
This is where succession planning comes in.
Like writing a will for your business legacy, succession planning is all about ensuring your life’s work is transferred responsibly when you leave so it can continue thriving without you.
Succession planning for businesses involves identifying and preparing qualified people – either internal employees or external candidates – who can step up to take on key leadership roles when you eventually exit your business.
Proper succession planning is crucial for entrepreneurs and business owners who don’t want to see their legacy crumble when they exit. It provides a clear roadmap for seamlessly passing the torch so your company continues thriving without you at the helm.
Planning early allows time to develop and groom the next generation of leadership.
Why Succession Planning Matters
You deserve to reap the rewards after putting your heart and soul into building something special. Succession planning ensures your life’s work doesn’t just gather dust when you move on.
Here’s why it should be a priority:
Preserve Your Legacy
Without proper planning, you may simply shut the doors for good when you retire. Poof – decades of blood, sweat and tears gone faster than you can say “weekend getaway in Byron Bay.”
Succession planning passes your vision and value created to a new caretaker rather than leaving your legacy to wither.
Realise Your ROI
Maybe you’re ready to cash out with an exit sale. Succession planning makes your business irresistible to buyers by boosting profitability, contracts and branding over time.
Do it right, and you can pocket a big chunk of change as a return on the long hours you invested.
Enjoy Options and Control
With planning, you have options – keep leadership in the family, sell to an outsider, or even hire a rockstar CEO to rapidly expand while you collect dividends poolside. You stay in the driver’s seat while smartly positioning your pride and joy for continued success.
Ensure Smooth Sailing
Carefully chosen successors can pass the baton seamlessly, maintaining business continuity without customers or employees missing a beat.
Planning prevents a disruptive sink-or-swim transition that could undo everything you built.
When to Start Planning Succession
Succession planning is like taking your vitamins – it’s most beneficial when started early and made a habit. Don’t wait until retirement is knocking to start thinking about the future.
Here’s why you should prioritise planning from the get-go:
Hit the Ground Running
Decisions about business structure, contracts, hiring and operations should be made right out of the gates with succession in mind. Getting it right from the start prevents headaches down the road.
Succession planning is like compound interest – the earlier you start, the more your business will be worth when it’s time to transition. Growing value takes years, so set the wheels in motion ASAP.
Enjoy the Payoff
You’ll reap the fruits of your labour from strategically planning your exit. A carefully executed handoff after maximising growth and grooming leadership means you can relax in your retirement.
Key Steps in Succession Planning
Succession planning is a gradual relay race, not a last-minute dash.
Give yourself time to execute it right by following these key steps:
- Map the Finish Line: First, choose your end date. When do you want to be sipping beers beachside? 5 years? 10? Marking your calendar creates accountability to start executing now.
- Weigh Your Options: Do you want to keep leadership in the family or sell to an outsider with fresh ideas? There’s no right answer – just consider your priorities and vision.
- Groom Your Protégé: If promoting from within, take someone with potential under your wing. Mentor them, offer training opportunities, and increase responsibility, but don’t threaten other employees.
- Boost Your Buyout Value: If selling is on the agenda, gradually enhance your company’s desirability. Lock in recurring revenue streams, invest in marketing and branding, and demonstrate consistent growth.
- Work Backwards: Plot out all key succession planning activities on a timeline leading up to your chosen finish line. Leave ample lead time to cover all bases.
- Review Your Strategy: Revisit the plan periodically and course correct as needed. Employees come and go, new opportunities arise, and markets shift. Flexibility is key.
- Enlist a Guide: Bouncing ideas off an experienced business advisor can reveal blind spots. Getting professional support ensures you cross the finish line on time and with sanity intact.
How Succession Planning Varies by Industry
While the overarching principles of succession planning apply broadly, the ideal strategies and points of emphasis can vary significantly depending on the type of business:
Trade and Service Businesses Have Different Needs
Building an internal succession plan often makes the most sense for trade businesses like electricians or plumbers since the value relates to providing skilled services rather than easily transferable assets. Apprenticeship programmes that groom a successor over 5+ years are recommended.
Service businesses like consulting firms can sell to external buyers more easily by handing off client relationships and recurring revenue streams.
Product vs Service Company Approaches
For product companies, the focus might be more on documenting intellectual property, systems and processes for manufacturing, and physical assets/inventory that can be transferred.
Service businesses emphasise identifying and developing leadership successors who can maintain strong customer relationships and talent to deliver quality services.
Recurring vs Project-Based Revenue Streams
For companies with recurring revenue models like software subscriptions, the emphasis is demonstrating sustainable, profitable revenue streams that an external buyer can rely on.
Project-based businesses must build sufficient internal capacity and leadership depth to serve clients seamlessly.
Harder to Sell vs Easier to Sell Businesses
Industries like specialised trades and professional services are generally harder to sell to an outside buyer than retail stores, manufacturers, and technology companies with valuable assets and IP.
Owners need realistic valuation advice. If selling internally, a longer lead time is needed.
The key is understanding your industry’s peculiarities related to succession and tailoring your plan accordingly. There is no one-size-fits-all approach.
Succession planning passes your legacy smoothly into reliable hands so your life’s work can continue thriving. With intentional preparation, you can choose your ideal exit on your terms while securing your company’s future.
It’s never too early to start mapping out options and timing. Having an experienced partner like MYC Partners Accountants provides tailored guidance and accountability so your succession plan crosses the finish line with your legacy intact.
To start succession planning for your business, contact our experienced team today.