Why Every Business Owner Needs a Succession Plan (Even if You’re Not Leaving Yet)
Posted October 14, 2024
Are you secretly dreaming about your business’s future? Maybe you envision a day when you can step back, travel the world, or finally tackle that passion project you’ve been putting off. But the thought of attending a “business exit planning” seminar makes you cringe. Will your employees panic? Will customers jump ship? Will rumors swirl around town about your imminent departure?
You’re not alone. Many business owners shy away from the topic of “exit planning” because it feels too final, too much like abandoning something they’ve worked so hard to build. But the truth is, whether it’s on our own terms or nature’s, we will all eventually exit our businesses.
That’s why many prefer the term “succession planning.” It’s not really about leaving; it’s about strategically planning for the future of your business, ensuring its continued success, and creating a smooth transition to whatever your next act may be.
Read on to learn the key differences between two main types of businesses and guide you toward the succession planning approach that aligns with your vision for the future.
Lifestyle vs. Value Creation Businesses
Not all businesses are created equal. Understanding the fundamental differences between a lifestyle business and a value creation business is the first step in effective succession planning.
- Lifestyle Businesses: These businesses are often closely tied to the owner’s skills, reputation, and personal involvement. Think solopreneurs, consultants, or small businesses where the owner is the driving force. Lifestyle businesses are excellent for generating income, achieving work-life balance, and creating a fulfilling career.
- Value Creation Businesses: These businesses are designed to operate independently of the owner. They have a strong brand, a dedicated team, and systems in place that allow them to thrive even if the owner steps away. Value creation businesses focus on building an asset with inherent value that can be sold or transferred.
A Personal Story
The distinction between lifestyle and value creation businesses, and the importance of thoughtful succession planning, is something I’ve witnessed firsthand. My father was an incredible entrepreneur who, over 15 years, built a thriving automotive repair business with over 25 employees and four distinct divisions. He was a master at cultivating talent, attracting loyal customers, and building strong relationships within the community.
However, despite his success in building a valuable business, he and my mother lacked access to the right advisors. The stress of running the business took its toll, and they eventually felt their only option was to sell and get out before it consumed them. While they did manage to sell the business—a feat only 20-30% of businesses achieve—they didn’t realize its full potential, nor did it create the lasting financial security they had hoped for.
My father’s experience ignited a passion in me to support entrepreneurs and business owners. I believe everyone deserves to build a business that brings them joy, financial security, and the freedom to pursue their dreams. That’s why I’m dedicated to providing the guidance and support that business owners need to navigate the complexities of succession planning and create a legacy they can be proud of.
Succession Planning for Lifestyle Businesses
Even if your business is deeply intertwined with your own efforts, planning for the future is essential. What’s your “next act”? Will you fully retire, reduce your workload, or pursue a completely different passion?
For lifestyle businesses, these professionals are invaluable:
- Financial Advisor: A skilled financial advisor, like Thayer Financial, can help you navigate the financial aspects of your next chapter, ensuring your personal and business finances are aligned with your goals. They can connect you with other professionals like CPAs and estate planning attorneys.
- Life Coach: A life coach can help you clarify your vision for the future, identify your values, and make choices that support your overall well-being as you transition to your next act.
Succession Planning for Value Creation Businesses
Succession planning for value creation businesses requires a two-pronged approach:
- Personal Track: Just like with lifestyle businesses, you need a plan for your personal finances, estate, and what you want to achieve in your next chapter.
- Business Track: This is where a value acceleration advisor becomes crucial. Think of them as the quarterback of your succession planning team, coordinating your existing advisors, key staff members, and other professionals. They help you:
- Maximize Business Value: Implement strategies to increase the value of your business before you transition.
- Coordinate a Team: Bring together the right people (legal, financial, tax) to ensure a smooth succession.
- Develop a Timeline: Create a realistic timeline for your succession, ideally starting 3-10 years in advance.
- Explore Options: Evaluate different succession options, such as selling to a third party, transferring ownership to family or employees, or going public.
- Harvest Wealth Strategically: Plan for how you’ll extract wealth from the business, potentially in multiple stages.
A Certified Exit Planning Advisor (CEPA) can be an invaluable asset in this process, working closely with your financial advisor to ensure your personal and business goals are in sync.
Conclusion:
Succession planning isn’t just about “exiting” your business; it’s about strategically planning for the future, maximizing value, and ensuring a smooth transition, regardless of your business type. Whether you dream of relaxing on a beach or embarking on a new venture, a well-crafted succession plan will give you the freedom and peace of mind to pursue your next act.
Ready to start planning for your future? Here are two ways to take action today:
- Deepen your understanding: For a comprehensive guide to building a valuable business and preparing for succession, I highly recommend reading “Walking to Destiny“.
- Connect with experts: Reach out to experienced professionals who can guide you through the process, book a strategy session with me (Tina Dao) or Deaton Smith for personalized advice and support.
About the Author
Tina Dao is founder and principal of Liberated Leaders, she partners with business owners and decision-makers to ease the burden of company leadership and embrace the discipline needed to create long-term value.
Tina is a Certified Exit Planning Advisor (CEPA) and Fractional Chief Operating Officer bringing more than 25 years of leadership experience at companies like Amazon, Fitbit, and Walmart to the growth stories of North Carolina businesses—helping entrepreneurs, business owners, and decision-makers scale entrepreneurship, define technology strategies, and ultimately architect a business exit.
Note: This blog was 85% human generated and 15% machine (AI) generated.
Citations:
Walking to Destiny: 11 Actions An Owner Must Take to Rapidly Grow Value & Unlock Wealth – 2nd Editionby Christopher M. Snider (Author), Scott Snider (Author)
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