In this video, partner Barrett Young discussions three relationships where communication is required. The goal here is to increase the valuation of your company and ensure a proper transition, keeping your business growing long after you've exited.
Honesty with Yourself
Succession planning starts with yourself, admitting that you're not going to be able to work forever. We recommend that you pick a date in the future, even if that date becomes flexible later on. What is your timeline for retirement? Is it 3 years? 5? 20? Regardless of what the date is, that timeline on the horizon requires that you be honest with yourself about your own goals. An end date forces you to continue to develop the next generation and work towards identifying a potential buyer or successor. It prompts leadership development and discussions about equity transfer. A successful transition plan requires systems that run without your input, a brand that remains recognizable and brings in new business, and a culture that exists distinct from the owner. This ensures you have a business worth passing off to a new owner (which also, coincidentally, helps to increase the valuation of the company in that transition). These moves cannot be done successfully in the last six months once you've decided to retire.
Discussions with Key Employees
You're not the only one that plans to retire someday. You likely have employees who are around the same lifestage as yourself. Whether they state it or not, they're going to weigh their own retirement timelines based on the successor you bring into the business. The best approach - for the sake of continuity in your business, and a successfully cashflowed buyout - is to have discussions with key team members about their own plans, and help them identify and train their replacements. A staggered retirement can make a huge difference in the life of a business in transition.
Communicating to Key Customers
Too many business owners don't want to let their clients and customers know that they're not going to be around forever. Especially if you work in a relationship business, it can be tempting to lead them on until the last minute, for fear that they might cut their losses sooner rather than later rather than take a chance on the new successor you might bring in. Existing clients will typically give the successor one year to earn their trust and keep their business, after a retirement. But then they'll move on, if they don't already have an established relationship.
Some business owners still love the sales and relational side of our businesses, closing deals is what keeps us engaged. But holding onto these relationships, and not properly incorporating the next generation in the sales process (or not even having a documented process) is a common killer of successful business transition. Even if the buyer might be able to maintain and preserve some existing relationships, for a time, they might not know how to ensure new cashflow is coming into the business.
There is a lot of work that must be done to successfully transition a business to the second or third generation. And a lot of this work requires communication among key relationships. Keeping everything to yourself until the very end is a sure way to devalue your business and reduce your pool of available options.
