Succession Planning

Succession Planning

Starting and growing a business usually involves a fair amount of sweat and sacrifice. Yet many entrepreneurs who have spent years building successful businesses would rather have root canal than undertake the often painstaking process of succession planning.

A “Succession Plan” is essentially an “Exit Strategy”, ideally one that ensures that the current owner of a business, or that person’s heirs, will be able to cash out at a fair value. In many cases, succession plans are also designed to ensure that businesses survive and prosper when current leaders are no longer in charge, because they retired, met an untimely death or suddenly become unable to work.

A “Succession Plan” helps to ensure the orderly transfer of a business from the current owners and founders to the next generation. A business owner should consider having a succession plan if monetizing their investment and continuation of the business are important.

Given the complex issues involved, succession planning can be very time-consuming. The process of maximizing an owner’s business and preparing for “Succession Planning” can take several years. However, the absence of a succession plan leaves a lot to chance.

Other factors that can affect this process include disability or death. As part of the succession planning process, some advisors work with clients to determine whether owners have sufficient life and disability insurances.

Some owners find that they aren’t likely to net enough from the sale of their businesses to maintain their current lifestyles during retirement, even after investing the proceeds. That realization may prompt some business owners to take steps to improve cash flow while they are still running their business.

Business Valuation

  • Profitability EBIDA Margins
  • Recurring revenue
  • Quality and depth of management team
  • Customer and vendor relationships and diversification
  • Clear succession planning
  • Intellectual Property
  • Growth trends for key products and services
  • Quality people, internal reporting and IT systems
  • Significant total addressable market
  • Strong pipeline/ backlog

Get the Financial House in Order

  • An audit or Quality of Earnings report is necessary in today’s transaction environment
  • Address potential financial vulnerabilities (Inventory accurate & equipment in good working order)
  • Build a forecast and compare actual results to the budget
  • Address working capital issues
  • Review company property and optimize value
  • Address taxes

A key to succession planning is assembling your “Team” of advisors. A core team of outside advisors can help you prioritize your efforts and help alleviate the incremental work required during a transaction process

Assemble a Team

The management team needs to remain focused on the day-to-day operations of the business to maximize value.

Company performance leading up to a transaction and during a marketing process are critical to maximizing value.

A core team of outside advisors can help you prioritize your efforts and help alleviate the incremental work required during a transition process.

  • Estate Planning Attorney
  • Investment Banker
  • CPA’s
  • Financial Advisor
  • Tax Advisor
  • Insurance Advisor

Frequently Asked Questions FAQs

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