How to plan for successful succession in four steps.
Every day, about 10,000 people from the Baby Boomer generation retire—nearly 80 million people over the course of 20 years. That includes tens of thousands of business owners who are reaching an age where an exit or transition is required—and neither the organization nor the individual is prepared for it.
But here’s what’s really eye-popping: More than $10 trillion is held in more than 12 million privately owned businesses. More than 70 percent of these businesses will change leadership over the next two decades.
There’s a lot of emphasis on how individual business owners should prepare for their retirement. But there needs to be just as much care and attention to the business and the people left behind. How does the organizational structure need to change? What knowledge needs to be shared? Is the business going to be sold, or is there a succession plan in place?
These are big questions, and if left unanswered, they can throw a business into chaos.
Common Problems
Typically, when a business leader or owner leaves, one of four—or sometimes all four!—problems arise around leadership, culture and finances:
No succession plan in place // There isn’t a clear understanding of who is taking over.
No solid understanding of the financials // The business’s value is not clearly articulated and monetized.
No communication plan // Employees and professional contacts don’t know who is taking over and when the leadership transfer will take place.
No recognition of retiring leaders // There isn’t a clear celebration of what a person contributed to the business and the legacy he or she is leaving behind.
When leaders don’t take the time to sort out their business’s succession, culture and finances, it can make their own retirement a difficult transition. In the end, feelings are hurt, employees suffer, and businesses can lose millions as the leadership crisis takes its toll.
Fortunately, it’s possible to leave behind a business that’s going to continue an owner’s legacy, do right by the stakeholders and set the foundation for future success.
Planning a Successful Transition
While it may be a complex process—often taking two or more years to complete— there are a few basic areas that need to be carefully attended to:
Succession planning // Depending on your business, carefully assess what key leadership roles need to be addressed. Identify internal or external candidates who can step up to take your place. Make sure that candidate has both the motivation and the ability to take charge. Communicate this information long in advance of the actual change—people inside and outside the organization need to know!
Sort out the finances // Some retiring Boomers plan to sell their business, but are often surprised when they learn that they might not be getting out of it what they had hoped. Hiring a third party to carefully audit and assess your business’s value will help you to anticipate what you can gain by a sale.
Transfer of skills // Typically, business owners bring a special set of skills to the table. Maybe it’s technical knowledge, or strong team-building skills, or great connections. Identify what those core competencies are, and take the time to share that knowledge with others in the organization. Make sure someone can do what you do as well as you can, if not better. Hiring a strong candidate may be another great choice, as well.
Celebrate the legacy // This is one of the most neglected parts of the transition process, and that’s so unfortunate. Many times, people beg off a good send-off with “I don’t like goodbyes.” But a celebration is a good way to preserve the culture and morale of an organization. Take time to celebrate accomplishments, recognize the legacy and pass along best wishes for the future. It’s a daunting process, but when people take the time to do it right, it goes so well.
For example, I knew of one couple who had spent decades building a business. When it came time for retirement, one of them was ready to exit, and the other wanted to continue to have some involvement in the business. And they both wanted to ensure that their business went on.
As a starting point, they met with advisers and assessed the value drivers of their business. Then they got to work, made some key hires and implemented other changes over several years. Their business continued on without a hitch, and they walked away with a fantastic sense of accomplishment and pride for what they had built.
With so much money—and so much work—on the table, it pays to take the time and effort to make sure that your business is as prepared for your retirement as you are.
