There are only two business models that will help you unlock Personal Financial Freedom. They are the Legacy Business and the Profit Business. Your business can’t be both, because the strategic approach to these two types of businesses is completely different. And that’s because your goal is different. So what does this mean when you’re thinking about a succession plan?
In a Profit Business, your most valuable asset is your time. You’ll keep expenses low so you can extract the highest amount of profit possible. In contrast, a Legacy Business is typically in the red for a period of time, because you’re building something valuable you want to sell.
In this Exiting Your Business, we’ve got four tips for how to go about turning your Legacy Business over to someone else.
Legacy Business Check-In
When we talk about succession plans, the first step is to make sure you’ve built a business that’s positioned to sell. Again, the goal for a Legacy Business is to be sold for a profit that fuels your Freedom Generator in a significant way. You can take out profit along the way, but generally you’re putting all your energy toward increasing the value of the business with an eye toward the eventual sale.
In Cash Flow Cure Module Two, we ask five questions about your Legacy Businesses to get you started out on the right path initially. As a quick reminder, the five questions are:
- Who would buy your business?
- Why would they buy your business?
- What would they value within your business?
- How would they value your business?
- For how much do you need to sell your business?
When selling is your goal, putting your deal together takes thought and careful planning. So if you have the answers to these questions, you quite correctly Started With The End In Mind. And when you’re ready to execute your succession plan, you already have some idea of the answer to question number one—who you want to sell your business to.
That means you’re one step ahead, and you have the time to build the relationships and internal structure you need to approach your target. When you finally do meet, they’ll see a self-sufficient business designed to entice them. As a result, you step out of your business with maximum profits and minimum fuss.
Have A Conversation With Your Leadership Team
Before you kick off your succession plan, let your team know what they can expect during the transition process. Walk into this conversation with a plan, because uncertainty causes panic.
Be honest, and explain as completely as possible. Allow your team to air out any concerns and suggestions they may have. Even if they were well aware you were building a Legacy Business, your transparency will reassure them around the impending changes and improve retention. And you’ll get a better idea of potential challenges before they become roadblocks. Even with the best planning, and your involvement every step of the way, your team on the ground knows more than you.
Think Long-Term Sustainability
Coming up with and executing a succession plan is like a game of chess. So strategize where leadership vacancies may lie during the transition and fill them with the best people for these positions.
Obviously, you’ve been planning for this since day one, but taking stock of the current business set up to identify potential inefficiencies is a good idea. For instance, you may find splitting existing management duties between two employees makes sense now. Or you may discover that something you didn’t know could be automated can be. Change always highlights opportunity no matter how well you plan.
Understand What You (And Your Team) Need
Find out which employees may need to transfer or have their existing duties tweaked to ensure for a successful transition. If you’re playing musical chairs with promotions, make sure you have a full understanding of who does what. Not just what you originally intended when you created positions but what actually happens in the day-to-day.
As you move to sell, cross-training a few employees is a good idea. And make sure you have well-trained candidates who can step into management roles if necessary. The last thing you want is an absence in a vital management role as you’re trying to sell.
As you’ve already invested a lot of resources into cultivating talent and hiring competent staff, this should be a cinch.
Know It Takes Time
When you Start With The End In Mind, it’s never too early to set the wheels in motion for your exit. So if you don’t currently have a succession plan in place, get started! Creating a detailed plan gives you time to tackle unforeseen challenges and make adjustments as necessary.
While executing a succession plan may not be easy, preparing well ahead of time, identifying potential challenges and giving adequate time to transition will make the process smooth for both you and your buyer.
image credit: Bigstock/AndreyPopov
The views and opinions expressed are those of the guest author and do not necessarily reflect the views and opinions of MindShift.money.
Jackie is a personal finance writer and content marketer. She is passionate about telling money stories and spreading financial literacy to a mainstream audience.