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Succession Planning

Businesses and other organizations that have structured leadership hierarchies are at their most vulnerable when leadership must change hands. In most cases, there are no dangers facing the company or organization, and the leadership changes without incident. In rare cases, arguments break out over who or even how the next leader will run things. If the current leader saw the potential conflicts coming, they could have implemented succession planning to facilitate the transfer of leadership.

What is the Succession Planning Process?

In most cases, there won't be conflict over who will lead after the current leader steps down. However, to ensure there aren't any issues, businesses and organizations have at their disposal a formal succession planning process. The succession planning process is ideal for getting a small business ready to be sold. The process includes:

  • Identifying a new leader, usually from within the business or organization
  • Consultation with a business sell-side financial advisor
  • Putting a change of leadership plan on paper
  • Implementing the plan per instructions from exit planning advisors
<b>What Is Required for Succession Planning?</b>

What Is Required for Succession Planning?

Succession plans are carefully thought-out changes of leadership strategies for ensuring the business or organization still functions as it should. Succession planning should be completed in three phases.

  • Assessment—In the assessment phase, owners do things like consult with a business sales financial advisor. This phase identifies any obstacles that might come up in a given time after leadership changes hands. The assessment also picks possible leadership candidates and starts the vetting process.
  • Evaluation—After the assessment, all parties will have a better grasp of what they are working with. The succession plan starts to come together as the new leader is identified. If the succession plan is for selling the business, you'll need to involve a financial advisor experienced with selling businesses.
  • Development—With the pieces identified the actual plan can be put down on paper. If you're selling your business, you might want to make sure the new leadership keeps doing things the way you did. While this may or may not be a motivation, the key is putting things on paper, so people are accountable.

How Do You Figure the Worth of a Business?

According to Forbes magazine, there are three ways to evaluate what a business is worth. First is the asset method where assets and liabilities offset each other for final net worth. The second is the income method. This is the most complicated because it includes forecasting things like future income and tax liabilities. Finally, is market value, a comparison of other businesses in the same sector, assuming there is market competition. What is best for your small business depends on the business.

What Is the Best Way to Sell Your Small Business?

If you're ready to sell your business, there is a right way and a wrong way. Choose wrong and you could lose thousands of dollars. Get it right and you could be set for life. The best way to sell your small business is with careful planning and patience. The plan should be detailed and leave nothing to chance. You'll need the patience to negotiate the best price.

As is the case with succession planning, selling your business also needs extensive planning. Therefore, coming up with a step-by-step plan ensures nothing gets left out. The National Federation of Independent Businesses (NFIB) published a 7-step plan worth mentioning.

  1. Determine what your company is worth.
  2. Hire an exit advisor to settle old debts and other financials.
  3. Do some succession planning to meet your needs.
  4. Increase sales to maximize worth.
  5. Find a broker.
  6. Make sure potential buyers can afford the business.
  7. Finalize contracts and renew if necessary.

Final Thoughts

Succession planning doesn't need to be complicated but it should be done by a reputable financial advisor that knows how to personalize a succession plan. There are a few reasons why a business would need this planning. The most popular is selling your business. You'll note succession planning is the third step on our list.

The primary point is that succession planning should be done in relation to how much your business is worth. Businesses with well-established, successful corporate cultures will be easier to sell and have a higher worth. Just like in selling a house, curb appeal is crucial for a quality sale. Don't navigate this difficult process alone, work with Badii Group so we can review your options with you.

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