Business Succession Planning for the Entrepreneur Starts with a Strong Foundation

This is a shout out to all those lovely entrepreneurs out there who have spent their lives building and creating one of those beautiful businesses that are humming and thriving along, providing meaningful jobs for members of our communities, and sharing some of their unique service or item that contributes to the world.  If you are reading this and you are over the age of 50, keep reading! Or if you are not, share it with a friend as a conversation starter.  I am here to say that not all businesses can be sold or passed on to the next generation, but many are.  To start with, give yourself the time needed to do our Ten Year Self exercise. You might realize it is time for you to consider when and if your business can be passed along.    And, for those of you young professional employees or future entrepreneurs who are seeking a path to ownership, you should read on as well!    What are two easy ways to get started? Investigate the foundation of your company, and then investigate what people in your life might be ideal successors/buyers.

A. How strong is the foundation of your business? Your business is not perfect, and neither is mine. With that said, a strong foundation is key.  My father was a builder and he always drove home the message that it doesn’t matter how pretty your house is, if the foundation is built on sand.  The same is true for business.  Your business may have a great reputation and public face, but behind the scenes, things are not doing so well.  Give your business a quick checkup to see where your business lands for sale potential.  Two checkups I like are the Traction Organizational Checkup and the Value Builder Score (“Sellability Factors”) created by John Warrillow, the later being summarized here*:

  1. Financial performance. Consider the company’s present value.
  2. Growth potential. Consider the company’s future value, along with its ability to scale (to expand geographically or to new market shares)
  3. Overdependence. Consider if any one key employee, customer or supplier is so critical it creates too much reliance for success for the company.
  4. Cash flow. Consider how the resources of your company could be used to expand without outside financing. What steps could be taken to improve cash flow?
  5. Recurring revenue. Consider what forms of revenue are recurring.  Recurring revenue helps support confidence in future sales, which reduces the risk to a future buyer, thus raising business value.
  6. Unique value proposition. Consider what your company’s “secret sauce” is.  The more unique your company’s offerings are, the harder it is for competitors to replicate it.
  7. Customer satisfaction. Consider the ways your company collects customer satisfaction data to ensure your company stays on track.  Testimonials are not enough.  The favorite critical question we recommend in our office is, “On a scale of 1 to 10, how likely are you to refer our company to a friend or colleague?”
  8. Strength of the management team. Consider how strong the leadership traits of your team are and if you have a diversity of perspectives and skill set to help inform decision-making.  If you are the sole owner and decision-maker, how well do you rely on professional consultants to help you?

B. What people make ideal successors/buyers? If you have a potential successor/buyer in mind, consider using our Know Your Advocates worksheet, to make sure that they are the right fit for business continuity. I like to encourage my clients to schedule “curiosity lunches” with those they might consider a potential successor/buyer.  Prior to the lunch, I ask my client to write down the many features of a successful business sale, including the ideal timing, financial position and the personality traits, skill sets, and personal motivations of a strong buyer.  Then, I ask them to leave the paper behind, and go into the lunch listening for the ways this potential successor/buyer might meet those needs.  It is common to want to mold the deal to fit a certain person, just out of the hope of having found the ideal candidate.  But, by writing down the needs ahead of time, it helps them stay accountable to the bigger picture goals.  Try this one.  At the lunch, ask lots and lots of questions.  You might be surprised by what you learn.

*Helpfully summarized in the excellent book, Finish Big, by Bo Burlingham.

© Maija West

By | 2019-08-20T17:09:43+00:00 August 22nd, 2019|Business practices, Uncategorized|0 Comments

Leave A Comment