Put the plan in succession planning
by Scott Bushkie
Succession planning is a real buzzword right now. With the large number of Boomers set to retire, everyone is talking about how to help them make it happen. Unfortunately, many business owners are having these conversations far too late.
If business owners just did one thing, one thing that I believe would make their work more enjoyable and more profitable, it would be to set a succession plan from day one of starting or buying a company.
Whether you’re buying a business at age 25, 45, or 55, sit down with your financial planner and figure out what you need to net out of the company to reach all your dreams and goals. Scope out what you want life to look like after a sale, and if it’s in the realm of possibility, go for it.
Most people start off in a sprint, with a lot of energy. But then after they’ve been in the race a while, they realize they have no idea where the finish line is. So they throttle back into a more comfortable trot.
Comfort leads to complacency. That’s not wrong, but it means your company has become less of an investment and more of a lifestyle operation. Strategic growth items go by the wayside, and cash flow management gets lax.
What happens, as owners jog along, is that suddenly they get a little tweak in their hamstring and realize they want to get to the finish line. Or worse, they completely blowout a metaphorical ACL and have to limp ahead.
At Cornerstone, we’re always talking about sprinting across that finish line. You do that with advance planning. Figure out what you need to get out of the business, set goals, and work toward that target.
I recommend an estimate of value every two to three years. It doesn’t have to be certified—just something to get a better understanding of where you’re at and what simple adjustments could help you reach your benchmark.
Then talk to a few different advisors. One group might recommend an ESOP, because that’s where their specialty lies. Other firms are really good at planning family successions. And here at Cornerstone, we primarily focus on selling the majority or 100% of the business to a third party. Some of those sales are done with the next generation or management team having a piece of equity going forward.
Make sure you understand all your options well ahead of time. You don’t want to reach that “I’m ready to retire. Now what?” stage. Better to say, “Now’s the time” and flip the switch on an established plan rather than trying to make big, emotional decisions when you’re feeling pressured, burned out, or just plain anxious to start the next stage of your life.
Start as soon as you finish reading this. Get an estimate of value and meet with your financial planner and tax accountant. Locate that finish line, so you can race across it.