Over the next five to 10 years, scores of small businesses will be sold or closed. If you have not identified your successor (internally or externally) at least three years before you want to exit, you’re at risk of not being able to retire at the age you had wished.
I often find entrepreneurs who continually delay the planning process because their business is doing well. It takes a crisis, a loss of key customers or a needed capital infusion to set the wheels in motion. Don’t wait for a crisis. Here are three potential succession problem areas to avoid:
Related: Putting Off Your Succession Plan? Don’t.
1. Choosing a new leader in your image.
Too often business owners evaluate potential successors based on their own profile without evaluating the current and future needs of the business.
Consider these questions: What’s happening in your industry? How much change is taking place? What competencies and experience will be needed for your organization to succeed in the future?
Your industry may be entering a time of increased regulations or off-shore competition that you have not previously had to deal with. I worked with one owner, a technical expert, who realized that what the company needed in the future was someone with more sales and marketing skills.
2. Giving up the title but not the control.
I’ve seen this happen many times. A business owner brings in a successor and a year later the newcomer leaves in frustration. Why? The owner keeps meddling and not handing over the reins. Be sure to have a plan for how you will manage the transition and share it with the successor.
Be specific about the timeline. Keep the dialogue open between you and your successor and don’t be afraid to ask for feedback about how the transition is progressing from his or her perspective.
3. Lacking future plans.
There is nothing scarier for an entrepreneur than contemplating not providing value to the organization he or she built. If you don’t already have a hobby or an activity that will take the place of business that you built, you need to explore your options.
Some executives and business owners I have helped make a transition have gone on to provide volunteer assistance to organizations like the American Red Cross or SCORE, an Small Business Adminstration program that provides mentors to small business owners. Several retirees have even moved on to teach at the high school or college level.
One business owner wanted to travel and play more golf. By the time he sold his business, he was working only about 20 percent of the time. It’s much easier to fill in 20 percent of your time versus 100 percent.
The point is that the planning process needs to include what you will do in the next phase of your life.
Succession planning, done correctly, will make you dispensable to the organization. The result is a company that can be sustainable in the future and thrive without your participation. When you have accomplished this, you will be able to maximize the value of your business and not have to work for the purchaser. You can truly retire and move into the next phase of your life.