(Part 2 of 6)
In our last article on succession planning, we gave an overview of how to begin the discussion of an exit strategy for the business owner or owners. Now it’s time to look at selecting the right leadership team to ensure a smooth transition, as well as maximize the value of the company in preparation of a sale – whether to a third party or a family member.
One of the keys to making a business more valuable is to have the right human assets, talent and skillset already in the company at the management level. Depending on the role of the business, one of the best ways to provide for the perpetuation of the company’s success is to ensure you have outstanding management in place in all vital areas of the operation.
Think about it from a seller’s perspective. If you knew most of the key managers who helped build and run the business would leave after the transaction, or if the current leadership seems inept without daily guidance from the current owner, it will seem like much more of a challenge to take on. As a result, they won’t want to pay as much.
On the other hand, the more the managers already in place can operate in an autonomous way without requiring direction from the current owner/leader, the more valuable the company can be.
The first priority should be in the “C-suites,” the highest-level executives: the CEO, COO, CFO, CIO and so on. It’s obviously critical to have the “right people on the bus” — those who have the proper expertise for their role and share a common vision for the company’s goals.
But don’t ignore the lower levels of management. It’s smart to take a really hard look at the organization chart in a strategic manner, and think about who might be ready to retire or move on – and who their replacement might be.
In contemplating a succession, you should perform an exercise where you evaluate every key position you have, whether the current person is performing up to task, and if you have somebody identified who would be the logical choice to step in and take over.
At Sponsel CPA Group, we advise most owner/managers to start thinking about succession five to 10 years out – though it’s never too late to start planning. During this phase it’s important to recruit, train and promote from within the business so your bullpen is always strong.
This can be a challenge for some strong-willed CEOs, who think everything revolves around them and the business would come crashing down without their daily oversight. This may be true, and even gratifying to some extent, but it diminishes the potential value of the company if the people around you aren’t trained to operate in your absence.
We recommend that business owners meet from time to time with managers in vital positions to assess their place within the organization. Talk frankly about what’s expected of them today, and also how you envision their role changing in the next three to five years. If you spot a hole in the skillset they’ll need to advance to the position you both desire, develop a plan to fill it.
It can even be helpful to have a written plan of how to groom someone for their move up the company ladder. For example, in year one they will take on certain new responsibilities; in year two they will gain oversight of this particular department, and so on.
If you feel like your current team of managers isn’t up to snuff, start making moves now so in a few years they’ll be fully trained and ready to go when you’re heading out the door. This will not only help the company you created or grew, but enhance your own financial position when the business gains in value.
If you have any questions about the succession planning process, please call Jason Thompson at (317) 608-6694 or email [email protected].