There is one indisputable fact with succession planning — 100% of business owners will have to exit their businesses. While running your business forever is not a choice, you do have many options. This is your future. Your goal is to leave your legacy by your own choice and exit on your own terms.
Chris Cimaglio and Todd Downing, who are both Managing Partners and co-founders of BEST Human Capital and Advisory Group, covered in-depth some of the processes and items growers need to think about for succession planning during the “Succession Planning: Building Value into Your Business” presentation at the 2021 GROW Executive Summit. Their firm conducted a survey of business owners to get an idea of where they stand on succession planning. The numbers are staggering.
One other number worth mentioning is that 75% of business owners profoundly regret selling their business after just one year. Why? Because their value, their identity, and their self-worth are tied up in their business. The transition from CEO to just a regular guy can be difficult for some. Therefore, it’s important you have a vision and make sure you are retiring to somebody or something.
Any third party looking at purchasing your business is going to do their homework on you, so you need to do your own homework and be ready.”
Chris Cimaglio
Todd Downing
Exit planning can mean various things to different people. One reality you as a business owner need to face is that there aren’t enough buyers for the number of businesses coming down the pipe, according to Cimaglio, so you need to look at the risks of delay and try to plan for them.
“Baby boomers make up 25% of the population, but they are 61% of all business owners,” said Cimaglio. “That’s 4 million businesses at a value of more than $13 trillion that will be sold or transferred in the next 10 to 15 years. And this generation differs greatly from the generations that follow. Generation X, the millennials, and Generation Z are not as wrapped up in business as the Boomers. They have a different view of entrepreneurship.”
Regardless of the exit strategy or transition plan you use, it is going to take three to five years to complete the process. It is not premature for you to think about a succession plan as early as possible in the life of your business. On average, it takes one year to close or liquidate a business. Selling to a third party takes two to three years. Selling to a group of employees takes three to five years, and a transfer to family members takes three to five years because of the expertise that needs to be handed down.
Knowing the value of your business is a critical piece to succession planning. And before you exit your business, you want to do everything you can to optimize it for the future sell. Plan on investors doing their due diligence in scrutinizing your business from end to end. You don’t want a deal to fall through because you aren’t prepared.
“Any third party looking at purchasing your business is going to do their homework on you, so you need to do your own homework and be ready,” Cimaglio said. “Their willingness to pay a premium depends on how well you are prepared for this process.”
The old model of financial repeating and simply looking at the cash your business generates is now taking second place to investors looking at the intangible assets of your business, according to Downing. In the past, wealth came from physical assets such as land and equipment. Intangible assets are the sum of four items.
“Knowledge is power and knowing your business' value allows the business owner to ensure their plans and goals are on the right track, which can put them ahead of the game,” Cimaglio said.
Oftentimes, the hardest step with succession planning is figuring out where to start. Cimaglio and Downing offered a few steps you can take to begin the process.
When is the best time to get started succession planning? There’s no time like the present.
