Today’s the day you’ve been dreaming of: opening your own business or buying an existing one. That’s also the day to start planning your business succession.
“Most small-business owners don’t; they just don’t think about it,” says Earl Gregorich, area manager and senior business consultant with the Greenville Area Small Business Development Center. “Starting with that end goal in mind is really important.”
That is, all good things come to an end, but what does that end look like?
“My point is,” Gregorich says, “you have to have some idea of what succession, what exit looks like, right from the start.”
Those exits can include leaving your company to your children, offering an employee buyout or simply walking away and closing your doors — or if you’re the owner of, say, Patagonia, giving away your $3 billion company, as Yvon Chouinard did earlier this year.
“I think as soon as they feel like they understand the business is profitable, if it’s capable of growing and their feet are on the ground, they should start planning, even for a young person,” says Joe Musuraca, a certified mentor at Greenville’s Piedmont SCORE, the Service Corps of Retired Executives. “The operative word is creating transferable value.”
Alan Cordonier, a one-time stockbroker, purchased St. Francis Pet Services and Cremation more than 20 years ago. The Greenville company, which opened in 1990, offered pet-cremation services. When Cordonier stepped in, the business was losing $100,000 a year, he says. Eighteen years later, the company was serving more than 100 veterinary clinics, according to Funeralfide.com.
But four years ago, out of the blue, two companies approached him, offering to buy the business he had owned and operated for 18 years.
“Our reputation was what this company was looking for: treating customers right and providing, obviously, a service that there’s a demand for at a reasonable price,” he says.
The Canadian company offered a reasonable price, too: in the mid-seven digits, he says.
But what if something had happened to him before that?
As Gregorich puts it: “Uncle Sam has a succession plan for you if you don’t have one. You get into estate probate, taxes and all that good stuff. They eat away everything you’ve built and there won’t be a whole lot left.”
Top 5 tips on succession planning:
- Start early – revise often
The sooner you have a defined succession plan, the easier it will be to run the business in a manner that will accomplish the end goal. Succession planning should be flexible enough to change as the company, the industry and the labor markets change over time. - Harmonize succession planning with short- and long-term planning
The succession plan should be a consideration in all planning efforts. You don’t want operational goals to be counter to succession, and you want your accomplishments to consistently move you closer to the trigger for succession. - Mind the skills gap
Succession can only be successful if the right people with the right skills are cultivated to move into critical positions within a company. Everything that is done in a business should be reduced to basic processes that can be duplicated and transferred to the successor. Even more important, as the owner, you need to know when to get out of the way and allow the more skilled person to take over. - Understand the timeline and its relation to strategy
Succession plays out over years, not weeks, if done properly. Business strategies that work for startups or growth may not present the business in the best light for a sale or employee buyout. You must plan ahead and be strategic about how the business finances should look at the point of succession or exit. - Prepare for disaster
We all know about the “Best laid plans …” The best planning can be rendered ineffective with an untimely death, loss of key personnel or maybe a pandemic. Owners should use tools made for succession planning, such as key-person insurance, employee stock ownership plans, partnership agreements and other legal preparations so that even if disaster strikes, succession can proceed smoothly.
Source: Earl Gregorich
Area Manager & Business Consultant
Greenville Area Small Business Development Center, in partnership with Clemson University
