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Business Owners: Is it Time to Adjust Your Succession Plan?

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Challenging situations, like the tumult of the past two years, can provide a valuable opportunity to reassess your business and reflect on its future.

One of the best things an outgoing business owner can do for their company is to transfer it to the right people, at the right time and under the best possible conditions for all stakeholders. But hitting all these targets at once can be difficult at the best of times, and especially during a crisis period. So what’s the best course of action?

A pandemic is a good time to assess leadership

You might think that a crisis would cause companies to automatically hit the breaks on their business transfer plan or even postpone it altogether. But the opposite is often true. A crisis can be a good time to verify whether or not incoming leaders have what it takes. What better way to know if you’ve chosen the right person for the job?

If your business transfer process is underway and you’ve already picked a potential buyer, this is an invaluable opportunity to see how they respond to urgent and stressful situations. In the event that they don’t rise to the occasion, ask yourself if it’s because of their attitude, leadership or capabilities.

The unpredictable nature of a crisis can influence all stakeholders involved in the business transfer process. Everyone—including banks, other financing sources, customers and suppliers—is looking for security. The appraiser tasked with assessing your business’ fair market value will try to determine what facts and figures have been stable over the years.

But the crisis may have impacted your sales, Earnings before interest, taxes, depreciation, and amortization (EBITDA), liquidity, and borrowing capacity. From a financial perspective, this is probably not a good time to assess your company’s value, unless your business provides essential goods or services. For sellers, it might make sense to put the business transfer process on hold for a few months.

On the flipside, buyers may want to have the fair market value reassessed, in the hopes that the numbers will have come down. When the parties have divergent interests like this, it’s unlikely that you’ll reach an agreement quickly.

A crisis can also provide an opportunity for new leaders to emerge from within your company. If this happens and you see that your prospective buyer can’t manage things alone, ask these leaders how they envision their future at the organization.

On the other hand, if your buyer shows improved leadership, provides you with support and communicates effectively with employees, you may want to reassess your planned phase-out schedule.

Your skills are a gift worth giving

When a business transfer process is planned over several years, you have a unique opportunity to share your skills and knowledge, so make the most of it!

Ask the buyer to accompany you to bank meetings when it’s time to finance the company’s liquidity, as well as to meetings with your suppliers, accountant, etc. Now’s the time to start transferring your skills, contacts, roles and responsibilities.

Take action today

The COVID-19 pandemic underscored the importance of being agile, creative and adaptable when faced with unforeseen situations. However, there are some things that are entirely within your control and shouldn’t increase risk, stress and uncertainty for you or your business.

You can get started with your succession plan now, adjust it as needed, based on what you learn, and then move forward with its implementation. If you’re planning on phasing out or moving into a more strategic role in your organization within the next 10 years, it’s time to give some thought to your succession plan. The investment will be an important legacy to protect your business’ survival.

Our experts can help you structure your succession plan and guide you through its development. Together, we’ll make sure you create the right conditions for a successful transition and a bright future for your business. Why wait to take action?

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