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 ?
"If we are to be able to sell our solo business, it is vital that we give the business a personality of its own so that the business can survive without us."
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.
Want more articles like this? Check out the business plans section.
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.
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.