Succession Planning – Where to Start?

By Conway Center Service Provider Joel Guth, CEO, Founder Gryphon Financial Partners

Every business owner is going to exit at some point. That is a fact. However, this can be an intricate, multifaceted task. For the past twenty years, we have advised our business owner clients and prospects to start with the same 3 questions. These answers provide the framework for the entire succession plan and what life looks like for the family post-exit.

  1. When do you want to exit?

How much longer do you want to work in your business before retiring or moving on? This objective is so vital to the succession planning process but probably the likeliest of all to be adjusted; especially when the other objectives cannot be met within their original timeframes. The following are questions that have assisted our business owner clients with establishing their exit timeframes:

  • Is your preference to completely walk away or maintain some reduced involvement?
  • If you thought the business was ready for you to exit sooner than originally planned, would you?
  • Have you considered what you are going to do with all your newly acquired free time for hopefully the next 20 or 30 years?
  1. How much money do you need or want after you exit?

Business owners’ lives change dramatically after an exit. First and foremost, usually they have a lot more free time on their hands. For this reason, we usually see many clients’ spending increase. These questions help to get a realistic pro forma cash flow need:

  • What are your current annual expenses like mortgage, taxes, utilities, entertainment, tuition, etc?
  • What personal expenses have you previously run through the business like automobiles, travel, health insurance, etc?
  • Do you have any large, one-time expenditures already planned such as a vacation home, world trip for family or new yacht to occupy your new free time?
  1. To whom do you want to sell or exit?

Selling to an outside third party or transferring to key employees or family members all entail very different planning. Making this decision as early as possible is vital. Questions to assist in this decision are:

– Frankly, do you have family members that are capable and want to take over?
– Can management buy you out the way you need to live the way you want post-exit?
– If you sell to a third party, are you willing to deal with losing the culture and mission that you have long cultivated?

Through the years, we have had the opportunity to advise many savvy business owners through many different exit strategies for their unique situations. Getting a handle on these three primary objectives as early as possible sets the stage for a well-planned, successful exit strategy.