The last couple of years made millions of Americans think about changing jobs, new careers, or early retirement. Many business owners envision how they’ll spend their golden years without putting a plan in place to make it happen.
Succession planning is knowing where you are, where you want to go, and how you’ll get there with the goal of minimizing risk and maximizing your firm’s potential value.
Every transition affects both clients and employees. Clients want the peace of mind of knowing their assets be taken care of today and in the future. It instills that you care about their wellbeing and not just their investment portfolio.
Conversely, the absence or uncertainty of a succession plan can severely damage your credibility. Current clients or potential investors could ask several “what if” questions that depending on the response could leave them insecure enough to potentially entrust their assets with a different firm.
Open communication can ease internal angst during a transition. The worst feeling for an employee is uncertainty about their future when they’re kept in the dark about how your plans might affect them.
Contracts, Service and Communication
Does your business/firm comply with internet and privacy laws, SEC requirements, anti-corruption laws and HR policies? Does it hold all required business licenses and permits?
Are your contracts clear with clients, consultants, employees, partners, and vendors? Failing to review all the components of your service model, including contracts with clients, talent, and service partners during a transition can subject your company and your successor to fines, penalties, and legal action.
This is not the time for a lapse in internal or external communications. Two items that may assist in starting a navigation platform include:
- Internal Information. Emphasize transparency and accountability by keeping employees informed.
- External Engagement. Keep audiences and the industry in the know. While negotiations and transition may be a quiet and focused time it’s integral to not be silent in the industry. Firms should maintain an appropriate level of social media engagement and should not miss a beat when it comes to external marketing
Managing Your Transition Dream Team
As you consider your exit strategy, it’s time to make sure everything is in order. Prepping for a business exit requires diligent preparation by an advisory team experienced in handling complex transactions. Your team should include legal counsel, accountants, compliance personnel, and/or representatives from human resources and information technology.
Once you’ve pulled your team together, outside counsel can help determine transition objectives and the current and required future value of your business. Most owners who start a business have never sold one. They can benefit from consultants who specialize in the process.
When performing due diligence for a sale, you’ll need a broad range of documents that include, but are not limited to:
- Organizational paperwork, such as articles of incorporation, bylaws and meeting minutes.
- Details of any pending or potential litigation.
- Any material contracts, including loan agreements, letters of intent and contracts with any officers or directors.
- Intellectual property information, including trademarks, copyrights and patent applications.
The precise paperwork required will vary widely depending on the business. Your legal team should have the expertise to help you create a list of essential documents and required information.
Outside counsel can review all paperwork for missing information or unforeseen problems that could develop. If you have ongoing issues with clients, vendors, or the IRS, try to resolve them as soon as possible.
Employee Engagement and Retention
Succession planning should focus on developing employees for future opportunities. That means providing attention and training for your staff. A good succession plan provides transparency, which helps employees understand the path toward promotion and greater responsibility. Succession planning and employee retention are mutually reinforcing. Ineffective succession planning leads to turnover.
To use a sports analogy, it’s helpful to think of succession planning as creating an employee “farm team.” Responsiveness to new situations – including unexpected ones – and resilience in the face of external conditions are traits of successful organizations.
As one example, investment advisers know diversification is essential when managing a client’s portfolio. The same is true with employees and succession planning. Having all your knowledge or skill eggs in one person’s basket is never a good business practice.
Taking the First Step
Due diligence can be among the most time-consuming parts of a business sale, but it’s critical to its success. Start gathering your paperwork now, even before a buyer comes forward.
Prepping for a business exit requires diligent preparation. Working with outside counsel can craft a smooth exit and accelerate the process. Legal guidance is vital to buttoning up your regulatory and legal compliance and positioning your company to optimize returns for founders and investors. For more information or assistance with your succession plan/exit strategy, contact the team at Jacko Law Group, PC.
