There are two main strategies for succession planning: internal succession planning and external succession planning. Both involve a process of extensive commitment from the business ownerm and neither of them is easy. What makes the process easier is planning these strategies as far in advance as you can.
Internal succession means that someone from inside your business will be taking over your role as business owner. Often this is the strategy favoured by family businesses– they hope to pass down their business to the next generation. The problem that arises with family successions is that there is then no real transfer of capital, and you are often left without a cash payout. Unless your child plans to purchase the company off you. However, where family is not involved, a management buyout is a strong and favourable option. It means that someone with a strong knowledge of the business can continue the business much in the same fashion that it has been done, honouring loyal customers and traditions. If they, under a succession plan, are trained appropriately, they will likely continue along the same path that your business was heading, and operations will run as smoothly as they always were.
When things really can change is when you take the external succession pathway. External succession, in laymans terms, means “selling your business”. As a method of exiting, many business owners chose to completely handover control to an external entity. This is risky, but it can be rewarding. Seeing the final value of a business can represent the sum of an entire life’s work for some owners. That final value is what is really important, so you need to be sure that the strategies you use to get there are sound. If you don’t work far enough in advance, this pathway will be marred with troubles. Firstly, you might not have adequate time to prepare the business for sale, resulting in operational dramas and a lower sale price. Secondly, you might not be selling at the right time for the market. Being able to wait a few years, because you planned in advance, is an enormous advantage. The third reason is that you might sell to the wrong people. Maybe you will see your legacy dragged through the mud by a company that have no regard for your customers, your brand name, or your staff.
Succession planning strategies are complicated and need to be dynamic. Things will doubtless change over the life of your plan, and that’s why it’s important to work with a trusted advisor. Start work early, so that you can reap the rewards later. In succession planning, there is no instant gratification.