Owner Preparation for a Future Exit

An owner’s exit from a privately held business is a complex process that impacts nearly all of the people and other constituents associated with that business. As a result, many owners will not execute on an exit plan until they have a high level of comfort with how and when this large change will affect them and the people involved with their organization(s). The purpose of this newsletter is to address the types of things that owners can do in anticipation of a future exit to attain a higher level of comfort with many of the unknowns that accompany an exit strategy and implementation process.

Where Effective Leadership Intersects with Personal Desires and Goals

When an owner begins to consider how and when they will exit their business, they often face the dilemma of putting themselves ahead of their company, employees, vendors, customers and anyone else associated with their organization. This is often difficult to navigate because, at some level, the leadership skills that made the owner successful to begin with – such as putting other’s needs ahead of their own (i.e. employees, customers, key business relationships, etc.) – now creates a feeling of conflict when deciding to plan an exit. The owner must face the necessity of putting himself or herself ahead of everyone else, which frequently proves to be difficult. In fact, owners beginning this process often say, “My family comes first, but my employees and company are a very close second.”  Therefore, in order to strike a balance in how an exit will impact all of the different people, the owner is advised to begin to anticipate the needs of these various people and be specific in their planning.

Anticipating the Needs and Concerns of Others

We know that anticipating the needs of others has a positive effect on the overall success of a business.  To help alleviate the stress and anxiety associated with making this decision, it is useful to anticipate the concerns and needs of others by preparing in advance.  One way to do this is by using an outside advisor or team of advisors to guide you through transition planning before turning to ‘insiders’, i.e. those closest to you in the business.

The Use of Outside Advisors in the Early Stages of Planning

Planning an exit or a succession of your business is a lonely task at best. Having access to a team of experienced and objective external advisors can be very helpful during the initial planning stage. While it might be tempting to look within the organization for guidance and assistance, keep in mind that core employees and/or insiders generally lack the experience needed for this type of planning. In addition, you will also want to give careful consideration to the inherent conflict of interest that exists with insiders / managers, as they are likely to consider the impact that these changes will have on them personally, making it difficult to provide you with completely objective and unbiased advice.

How and When to Bring Insiders into Your Circle of Trust

After an initial stage of planning, where you get educated on the exit options and begin the process of executing on your strategy, you will eventually need to bring specific members of your leadership / management team into the planning process. Determining who to trust (as one of your insiders) and who will be the best and most effective advisors, can be a challenging task and careful consideration and thoughtfulness is in order.

As a general rule, you want to begin with one or two trusted insiders who are working at a strategic level with you in the organization.  It is expected that these senior managers can understand what you are sharing and, perhaps, even see the benefits of future ownership of the business in new hands.

An Internal Communications Plan

In any business scenario or situation, communication is a critical component and a key to success. Without clear and concise communication, outsiders (and insiders alike) may begin to speculate or fret over what the future holds. No matter the level of internal input or consensus achieved, it pays to develop a detailed list of all individuals directly impacted by the eventual succession and exit.

For some folks, the owner’s exit may mean a promotion and/or greater responsibility. For others, having the owner move on may mean the end of their employment within the company. In some cases – where the owner manages key relationships to the enterprise – a tailored communication plan is necessary to assure relationships will remain intact and not be damaged through the succession.

The process of detailing the anticipated impact on each of these individuals is hugely valuable to owners and helps them think through the likely scenarios where others will feel the change. Having a documented “Succession Playbook,” which considers all possible scenarios, adds a dimension of organization and planning to this process which should help you, the owner, get a higher level of comfort with this inherently challenging task of communicating change through the organization.

Developing A Succession Playbook

To assist you in your planning, we recommend writing a succession playbook.  Begin by listing every key stakeholder to the business who will be affected by your exit and the impact that the exit has on each person or association. It has been said, “You cannot manage that which you cannot measure,” therefore, taking stock and measurement of those affected by your eventual departure is an important component of coming to grips with the changes the company will face.

Tipping the First Domino – Getting the Process Started

Eventually, when the initial planning is complete, your outside advisors and internal managers are aligned with your thinking and when it comes time to execute, you will need to begin the communication process.  We recommend that you organize / schedule the initial conversations with your top managers first in order to gain consensus at the top of your organization.  After their questions are asked and answered, it will get progressively easier to communicate both down the employee list as well as to outside parties.

Concluding Thoughts

Succession planning is not an easy task and it is not something you do overnight. There are many moving parts involved with passing the torch, but with the proper succession team and transition planning, you can alleviate many of the headaches associated with this life-changing event. Start planning early; be mindful when considering the impact on your employees, customers, business relationships and vendors; develop a team of individuals who you trust to guide you through the process; have a clear and concise communication plan ready to roll out; and, develop a succession playbook. Having these tools in place will help to eliminate an environment of instability and will provide ease-of-mind as you move on to your future endeavors.

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