STAGE 5: The Succession Phase of Entrepreneurship
You’ve built a successful business. You’ve given your life blood to get it to where it is, but now what? If it’s time you do something else – a new business, retirement, a hiatus – it’s time you build your succession plan.
You have a few options:
First, you have to determine what the best option for you and your business is. It may sound great to stay on as an owner, but do you have the management team in place to run the business and not require you to step back in? Maybe you want to sell to your employees – can they buy? Do they want to buy? Can they run it if they do? You want to ensure their success after all they helped you get where you are. Often times, the answer is selling to a new owner. If you go this route, you’ll want to think about what type of person or entity is the right fit, if they have enough capital to buy your business, and if you’re ok knowing they will likely change your business once they buy it.
Whatever option you choose, you should create a succession plan.
Create a Succession Plan
A succession plan makes the hand-off process much smoother for both the buying and selling parties. With such a plan in place, both the buyer and seller will have a better understanding of what to expect from the purchase transaction. Furthermore, succession planning also preps the company and employees for the hand-off in ownership and calms fears during this process. With a succession, both yourself and your buyer can build something special for your futures.
Determine the Value of Your Business
Be sure that you know the true value of your business. Do you know the monetary value of your company? If you haven’t run a value assessment on your business yet, you will want to do so. After all, you don’t want to sell yourself short on the value of the successful business you have built. Your banker can help you determine this or introduce you to an accountant or business broker.
Prepare Your Financials
Understanding your business financials will better help you position your business to perspective buyers and to the bank funding the purchase. Both the buyer’s and seller’s financials need to tell a good story to the bank funding this transaction. Compile documents showing financials for at least the last three years to show financial trends and predictability. Outline what owner’s costs won’t be part of the business going forward – owner expenses like cars and entertainment.
Pick a Successor
Your successor may be your own child, a current employer, someone in your community, or a stranger. If you don’t have a successor in mind, your banker, financial advisor, or CPA may know of another entrepreneur in the market to purchase a business just like yours! Regardless of the relationship you have with a perspective buyer, having a purchase plan in place helps your buyer (and yourself) navigate the purchase process. A detailed plan will prevent unforeseen bumps in the road from halting or stopping the purchase process.
Prepare the Purchase Agreement & Determine Timing
Timing is a key factor in the purchase of your business. Your buyer may have a different transaction timeline in mind than you do. It is important that both yourself and your buyer know what to expect and negotiate the timing of the business purchase to suit both parties’ needs.
Next Steps Check-in
Ask yourself these questions during your succession planning journey:
If we can help you get to the next phase of your entrepreneurship journey, please reach out to a banker. We would love to be a part of your Village, connect with them today!