Try this one on for size (and then let its enormity sink in: Nearly 10,000 U.S. Baby Boomers reach retirement age every single day That leads me to believe that an awful lot of owners in the electronic security industry will be retiring from businesses they have built over their lifetime.
Let’s talk succession planning this month, and I will try to help with seven salient points. By the way, the single most important point in this month’s column is in the last sentence — make sure your read it to the end.
1. Get started now! Business succession planning is complicated, and it does not happen on its own. A good business succession plan is developed and put into action years in advance of the actual transition of ownership or management of a business. A plan for a family-based business should consider family members, including those who do not work in the family business and non-family key employees. Failing to plan the succession of your business is the same as planning to fail.
2. Successful succession planning takes a team. Assemble a team of knowledgeable professionals, including lawyers, accountants, financial advisors, valuation experts and, for family business, even a family systems therapist or professional facilitators. Use professionals who can draw on experience and industry knowledge — a local professional may be your buddy, but does he really know valuations, opportunities, succession planning, etc.?
3. What’s your vision? You cannot plan without deciding where you want to go. Your succession plan should be based on what you want for your business. Once your vision is clear, you can involve other stakeholders — family, employees, lenders and buyers. Do not drive in the fog without good fog lights; business — and life — offers enough challenges as it is.
4. What’s your strategy? Once you know where you want to go, a good business succession plan needs to outline how you are going to get there. Incorporate your succession planning team and, if you have a family business, your family. How will you position the business over time to achieve your vision?
5. Navigate charged emotional issues. A corollary to get started now and your overall vision: Succession is a delicate and emotionally-charged venture. Some business owners often focus on other issues not wanting to deal with their retirement or the transition away from the business. Letting go is not easy for someone who has poured their life’s energy into building a successful business. If you wait too long, you jeopardize your ability to maximize your investment, and provide for your loved ones. Figure it out.
6. Select a successor. This can be the single most difficult and delicate challenge in succession planning. An effective successor must be groomed and that takes time. Owners must put the designated successor in a position to control the company, which can be tricky with family members involved in the business. Give your successor an opportunity to succeed.
7. Revisit the plan and the process continually. The plan is a living document. It should grow just like your business. Update the plan periodically. Meet with your team at least annually. Select a place where you can think and strategize without interruption. Market conditions, opportunities, obstacles all impact the plan and its implementation.
A final thought: We have long had an active market for the purchase and sale of alarm accounts, and that is a completely appropriate approach to succession. That said, the multiple (and purchase price) won’t just magically appear for you in the year you decide you have had enough — no matter what others may say.
You must plan for it and run your business to merit the right multiple. Good buyers aren’t just looking for a pool of alarm accounts — an inherently waiting asset. What they really want is a business that can replace attrition and grow and that has effective systems in place. In other words, no matter your exit strategy, run your business as if you intend to exit the very next day.
Eric Pritchard is a Philadelphia Lawyer who spends his workday making the world safe for electronic security providers. He can be reached at email@example.com. This column does not constitute legal advice; contact an attorney with questions.