Laying the Foundation for a Succession Plan

After 20 to 30 years of hard work many owners should think about retirement and selling their company but choose not to for several different reasons. Some of those reasons are:

• None of the children want to continue with the business.
• The key managers at the company are not capable of running it for another 10 or 20 years.
• Many owners are not sure how to start the selling process.
• Many owners do not have adequate income for retirement and they need the continued salary from the company.
• Many owners enjoy working at the company and plan to die with their boots on.

Even if you don’t have a prospective buyer in the hopper, don’t panic. Many things need to be done before the transition takes place. The best first step is to start preparing a plan three to five years before you want to retire or sell.

During the first half of that time frame, put together an advisory team that can help you research all of your options. I normally suggest your personal accountant, an attorney whose specialty is corporate planning, and a personal financial adviser who knows your industry, is fee-only, and acts as a fiduciary for you. These individuals will help you put together your best options for transitioning your company to a family member or perhaps key employees, or some other company owner.

Selling to someone who already has a company in the hardware industry will normally get you the highest price. Let one of your advisers negotiate the sale for you and also negotiate a plan that provides the lowest income tax for you. If the buyers are going to be a family member, make sure over the next one or two years they are thoroughly trained in all facets of running the business. At some point you need to back away from the daily activities and let the new family member make most of the hard decisions while you stand on the sidelines and watch.

In the second half of your three- to five-year time frame work on cleaning up all of the corporate financial statements and work on improving the company’s usable cash flow and profits. Remember that if a family member is going to buy the company he or she needs all the usable cash flow available. If you are going to sell to someone outside the family show them the highest amount of usable cash flow in order to get the highest price.

The next item to work on during the second half is all of the personnel. Make sure you have all the right people in the right jobs. Make sure each employee has the best training available for his or her job description.

Maybe the cooperative or association that you belong to has special training programs that your employees should go to. Maybe there are some excellent classes at the local vocational school. If someone inside the family or outside the family takes over the company they will want to know the employees they are inheriting have excellent training and job skills.

At the end of your three- to five-year time frame make your corporate facilities look as good as possible. Fill every pothole, stripe the parking lot, paint everything inside and out, make sure all the signs are lit up and that the customers enjoy coming to your facility.

If you think you would like to semi-retire in approximately three to five years then follow the steps in this article, don’t procrastinate.

First, find three or four excellent advisers who have helped hundreds of business owners sell their companies. If you don’t have these types of people in your home town go to a bigger town.

Then, spend about two hours with your advisory team every six months talking about the progress you are making and ask them for new ideas. Share with them your financial statements and every problem that you have pertaining to running your company. You only get to retire once; that is why spending a few hours each year with your advisory team is so important because they have already been through this hundreds of times.