Succession Planning for Business Owners: How Do You Want to Exit Your Business?

Baby bees are truly amazing. They offer various lessons in organisational theory. The queen may be considered the head of the colony and yet, curiously, she may have little or no “say” in how she is changed. If she dies or goes missing, the beehive create a new princess or queen. Actually they create a number of potential full larvae and the first to mature kills all the others. However, the hive may also make a decision that the queen is too old or is failing and needs to be replaced and so they create a new queen. Or conditions may be so favourable that they decide to divided the hive and they create a new full and the old california king has to find a new home. In each case, it is the hive that “decides” on the fate of the queen, not the princess or queen. Trending Design

It causes you to wonder, does not it, what would business be like if the staff decided mainly because it was time to replace the best? Of course, creating a new leader in business is not as simple as feeding a larva noble jelly… 

Just like the queen, though, there are four ways that a business owner can get out of a business. These four exit routes we will call the four Ds (rhymes with Bees).

First of all, similar to the queen bee you could Die operating. This might not exactly be the choice of choice but if the time comes you won’t care much by what happens next (probably). And therein lies the condition – what happens to the business afterwards?

It is usually kept to your family to work through and if they don’t have the will or capability to deal with your business then it’s going to difficult for them and your faithful employees. You may have made provision for this situation with an insurance plan, shareholder’s agreement and interim management provision, but it’s not suitable for the morale of your employees. Naturally, even with the best laid plans, it might happen anyway, so it’s always best to be ready with insurance, records and contingency plans in place. Yet , by choice, I assume this may not the exit most people are trying to achieve.

The second option is Dissolution. That is, at some point you choose to retire and you decide to close the business. All the hard work you’ve put in to building up will have been for free as your legacy goes away. Even greater, if you have employees they would lose their livelihood. While this may be preferable to death in service, I actually would suggest, as it involves a conscious choice, it still seems an attractive sad way to quit.

Another is Disbursement – that is lobby someone to buy it from you. It could be your management team, a provider, customer or competitor or maybe someone who fancies jogging your business. This could be the biggest payday you’ll ever have. It might also be the most disappointing pay day likely to ever have if you don’t put the necessary preparation in to making your business attractive to a buyer.

There are numerous of factors that go into making the sale of your business as rewarding as possible. Firstly, and perhaps obviously, the better your business is monetarily, the more it will be worth. This means good margins (for your industry), strong cashflow and facts of growth and development potential. It also means having good financial management systems in place: a budget (that is used), a cashflow forecast, a capital plan, a list plan, a marketing plan, an income plan, and many others.

Secondly this means that the business is not dependent on the owner due to its leadership. In other words, there is a management team in place. Businesses that rely after their owner to be there to deal with the day-to-day functions typically command a deal price of 3-40 times lower than ones with a management team in place.

Talking of over-reliance, if the business is reliant on one, or a limited number, of key employees, customers or suppliers, it will also put a dent in the sale valuation.

These kinds of are all things that you have control over. Similar to a strong recurring income and high customer satisfaction ratings. Nevertheless they do take time to develop, largely because you can’t do it at one time. In addition, after getting developed strengths in these areas you will get a greater valuation if you have historical data over a period of time to prove it. So a lucrative exit may take 5 years to achieve.

Yet , having brokered a sales, lucrative or otherwise, which not the end of the story. You could be asked to settle on with buy out classes, particularly if you are still heavily involved in the business. That period can be depressing. It is usually even more depressing when you fail to achieve the buy-out targets and so you never get the final payments.