In Part 1 and Part 2 of this article, we discussed why every business needs to include succession in its strategy from the very beginning and how to think critically about your company so that your strategy reflects your operational and personal goals. Now that you’ve done that, it’s time to get down to the nitty-gritty.
Step Four: Create your business succession strategy.
Obviously, the details of your strategy will vary based on anticipated industry and economic conditions, which exit option you choose, and what resources you and your team can bring to bear. Still, your strategy should address a few key areas:
While you don’t want to let your emotions drive the bus when it comes to making decisions about your succession strategy, it’s unrealistic not to expect that this change will stir up strong feelings. Try to align your strategy with the personal and professional goals of your key stakeholders as much as possible.
For example, you don’t want to exert pressure on your children to take over the business because it’s your dream. If insurance isn’t “their thing” or if they’ve already made considerable investments in their own careers, it’s not fair to expect them to accede. On the other hand, if your strategy involves winding down your agency, you’ll want to be frank with your team about your decision. That way, they can make informed choices about their own career paths.
Finally, realize that no matter what decisions you make, chances are that someone isn’t going to be thrilled by them. Be prepared to deal with pushback and fears of the unknown in an empathetic, but firm, way.
The most well-thought-out strategy doesn’t do you any good if the parties involved don’t have the financial resources to execute it. This is especially true if you plan to sell your business – either to a chosen successor or on the open market. Don’t count on potential buyers being able to get a loan, for example. Economic ups and downs are a given. They can have a huge impact on interest rates and even the willingness of banks to extend loans.
If transitioning to a management model, include salaries and benefits for any new leader(s) in your budget projections. Even if your plan is to shut the doors behind you, realize that there will be costs involved. You may also encounter delays in realizing the value of assets such as office space and other property.
Lastly, don’t forget to take the tax considerations of any financial transactions into account. If large sums are involved, they can easily push you into a different tax bracket or trigger capital gains tax.
Accurate Valuation of the Business
While we’re talking about all things finance, it’s a good time to tackle one of the most common pitfalls of business succession strategizing: inaccurate valuation. Too many people value their companies based on what they want (or need) to get out of them.
It is ESSENTIAL to have an accurate valuation of your agency! In fact, I’d recommend bringing in a qualified expert with no skin in the game to make an impartial assessment. If the number they provide is lower than you expected, don’t panic. One of the main advantages of proactive strategizing is that you have time to improve the value of your organization.
Your strategy should include provisions for a sudden, unexpected implementation. (After, none of us knows how much time we have.) Ideally, though, you’ll be able to transition from your current governance structure to the new one over some period of time. That means you need to make some decisions about how you’ll pass the baton on a wide range of operational responsibilities.
Rather than setting a hard-and-fast calendar, consider using a series of competency checks. Think of it as an apprenticeship. Once an individual or team proves that they can perform duties X, Y, and Z, with minimal input or oversight from current leaders, they can take over ongoing responsibility for that area. This approach not only improves outcomes, it actually provides an incentive for acquiring new skills by making their utility clear. You can further increase the motivation by gamifying the mastery process.
Last, but certainly not least, seek out qualified legal counsel to help document key aspects of your success strategy. Making a significant change to the ownership and/or governance of your business is at least as complex as setting up the entity to begin with – probably more so. It is NOT something you want to handle with a handshake deal or with a legal document you found on the internet.
If you don’t have a general counsel, find a legal professional well-versed in the laws and insurance regulations of the jurisdictions where you are domiciled and do business. Discuss your succession strategy with them in detail. Then, have them create whatever contracts and other legal forms are required to facilitate its implementation. You may also need to review personal legal documents such as (living) wills and trust agreements.
Keep in mind that any documents drafted will need to be reviewed periodically. You need to ensure that they continue to conform to current laws and best practices. (In fact, you’ll need to revisit your whole strategy regularly and modify decisions if your circumstances or industry conditions change significantly.)
Step Five: Implement your business succession strategy.
Congratulations, the time has come to move forward into your future! It’s time to implement your strategy. Hopefully, the steps taken so far have helped create an organization as focused on the future as the present; one well prepared to embrace change. Be careful, though; even at this point, there are common pitfalls that can derail all that hard work and thoughtful planning.
One of the most common is not letting go. Yes, it’s hard – especially if you’ve built your business from scratch. Will those who come after you things differently than you would have? Probably. Will they make mistakes? Almost certainly. But coming to the rescue (or just plain interfering) undermines the authority of new leaders in the eyes of employees and customers alike.
Worse, it can undermine their confidence in themselves. If you’ve prepared them well, they’ll take ownership of those mistakes and learn from them – just the way you did. Don’t take that opportunity away from them. If they seek out your advice, consider giving it. Just don’t become a crutch.
Step Six: Assess and evaluate.
As more than one military and political strategist has said, No plan survives contact with the enemy. If you involved your team in this process, hopefully, they won’t find this to be true. That doesn’t mean, however, that there won’t be adjustments that need to be made.
No matter how much they want it and prepare for it, some new business leaders sometimes find the big chair more of a hot seat. Even if their commitment doesn’t waiver, leadership has a learning curve. Some decisions will have consequences that impact the organizational assets, talent, and culture we talked about previously.
That’s why it’s vital that agency leaders meet regularly with key employees, their team as a whole, and even customers and vendors. Solicit feedback on how things are going. Analyze that information thoughtfully and without ego, and be prepared to pivot if necessary.
Only when this step is taken can a business succession strategy truly be said to be complete.