Business succession planning: Developing an exit strategy

Not many soloists give a good deal of thought to business succession planning and developing an exit strategy, yet one of the key requirements of a successful business is to know how you want your involvement to end up.

A popular phrase to describe how to terminate your business involvement is ‘exit strategy’ however I prefer ‘succession strategy’ or business succession planning as you ideally want your business to succeed even after you’ve moved on, don’t you?

In fact, it’s commonly accepted that as a business moves through its various cycles, different personalities are best suited to leading it forward.

In troubled times, a hands-on and highly-focused manager is usually best, however when things are going well, the business is best guided with a light touch, with most of the manager’s time focused on planning and preparing for future growth.

So, what should we be considering with our own business succession planning ?

Firstly, consider if and when you may want to hand over the business. Is it when it gets to ten employees? When it gets too big to run from home? When we’ve built a nest egg big enough to be able to retire?

Do you need an exit strategy, or business succession plan?

The difference between the exit strategy and the business succession plan is that the first means you exit and your involvement ceases, whereas business succession planning means that you want to have an active say in the future of the business, if not by retaining equity, then at least choosing who takes the business to the next step.

The problem for soloists

There are actually two problems.

The first is that as soloists, we are the business and unless we build in some residual (i.e. passive) income then we have to keep working for the business to survive. For instance, I’ve just written, and am about to publish, a book which I hope will be so successful it will generate huge royalties for decades to come.

If we are to be able to sell our solo business, it is vital that we give the business a personality of its own (known as ‘building the brand’) so that the business can survive without us, thereby giving it real value in the eyes of a potential buyer.

The second problem is that even when we have employees, the business is still our baby and we are reluctant to delegate authority to employees, much less to create and document business rules, a strategy which give the business structure and enhances its value to potential buyers.

If you maintain this level of control, even if you do have a number of employees, then from potential buyer’s viewpoint the owner is still the business and so the business has no real value for a new owner to exploit and grow.

The Solution

When you do your business plan and set your milestones and measures for the business, always keep in mind the need to create equity, i.e. value that others are willing to pay for.

You also need to have systems and procedures in place that mean the business can continue to operate to the satisfaction of your clients even if you aren’t there. Before you say that your clients need you, think of locums that allow loved and trusted family doctors to have holidays.

If your business is organised so that it can survive without you, the worst that can happen is that you’ll be able to go on holiday leaving your mobile and email at home. The best that can happen is that you’ll retire comfortably, happily knowing your ‘baby’ is growing under the careful and loving guidance of its new owner!

To those thinking of walking away, I'd say please don’t close your business down. You had a dream and turned that dream into something that others valued. It would be a sad loss to you and them to just close it down.

Grant Hyman is a specialist Sales Consultant whose company, Sales Central, is dedicated to maximising the sales successes of clients by assisting in the areas of Training, Recruiting, Automation, Motivational Speaking and Coaching.

7 comments | Add your own

What a fantastic way of describing it. Actually, I'm reading this waiting for the taxi for a week long holiday, having a serious internal discussion about whether or not to take the laptop and the phone.
Against - what can go wrong in a week
For - it just might.
Denise
Denise Maffey CA from Kumeu
Before i got into business, I had a strategy.. and the first business is always to expand to a second one, and the second to the third.. by the time the third is established.. the first business should have run its course.. and the third should establish the 4th by the fourth the first business is either sold off... or shut down..that is the ideal exit strategy.
The main thing is not to have an emotional connection to the business, and when you exit.. have a 12 - 24 month transitional phase.. you shouldnt have a problem with an exit strategy.. I hope that helps darrell_dower from Brisbane
Many solo operators are solos because they do have an emotional connection to their business - many of them are creatives and their business is an extension of themselves. Many do not have employees for that very reason,. However, other streams of income, either associated or not with the business, could be strategies to pursue to lighten the burden. As for me, I absolutely love what I do and have done for the past 32 working years, and will most likely continue indefinitely, adapting and learning continually. For some the concept of non-exiting may sound silly, but I know there are others who would do exactly the same thing. (My dad was happy working solo until he died.) Each of us must be true or authentic to ourselves. Happy Easter to all. Karen from Springwood NSW
Very helpful article. I have got to the stage where I am busy and bored (doing the same thing five years). My solo business makes it difficult to take holidays of more than a few days so I am ready to expand and exit (eventually). I know it takes it from a solo business but I want some really long holidays with my wife and children overeseas and am ready to take life even slower than I do now. Anthony Dohrman from Gisborne, NZ
Thanks for your comments - all great additions to the article! Grant Hyman from Sydney | Read my articles
Having an emotional connection to the business is good but it takes away the objectivity. To be successful, both with expanding or exiting the business, it is better to remain dispassionate and look at the business as an investment. Online business models, as described in www.searchenginerankings.com.au help in creating residual income and increasing the ongoing value of the Business. Anup Batra from Melbourne, Australia
It's very good article, gives many ideas to readers. Shiv. Hiremath from Dubai, UAE

7 comments | Add your own

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