5 Common Missteps in Succession Planning
Vicki Donlan wouldn’t change a thing about the way she exited the newspaper business she owned for six years before selling it in 2004. That’s because she started her business with the intention of getting out.
“Most businesspeople plan for everything but to sell their business,” says Donlan, who is now an exit strategy consultant. “That opens them up to making mistakes when it comes to succession planning.”
No matter how close to or far from retirement you are, here’s what not to do when planning your exit.
1. Not knowing what you want: The first step to a successful exit is figuring out what you want out of the business. On a regular basis, ask yourself these questions: How long do you want to work in the business? Who do you want to sell it to? What type of deal do you expect? Remember that many buyers want an owner to stay on for a specified length of time following the sale, which may affect when you try to sell.
2. Assuming your children want to take over: Pushing a son or daughter (or both) to take over the family business generally doesn’t work. If you plan on selling to a family member, ask yourself the same questions you would about any potential successor: Does that person have the skills, desire and experience to succeed?
3. Going it alone: Consult your financial adviser, attorney and CPA when planning your exit strategy. These experts can help you make sure you’re getting the most from your succession plan.
4. Naming the business after yourself: All businesses have brand equity, and the business won’t be worth as much if the person whose name is on the company has left. If your name is on the business, consider changing it. You’ll probably also get a better response from potential buyers.
5. Getting locked in to long-term agreements: At the beginning, growing a business is a primary concern, but Donlan cautions against taking outside money to grow, which could delay your exit strategy. She also would be leery of long-term lease agreements or other obligations that could stand in the way of a sale.
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