Business Succession Planning: Why Owners Get Stuck Before They Ever Make a Decision
Succession planning is a hot topic right now.
Over the past year, I’ve had more conversations about ownership transitions, exits, mergers, and “what happens next?” than at any other time in my career. Entrepreneurs dealing with everything from:
Offers from the wild world of private equity
A firm who wants to undertake a merger of “equals” (hint - that’s not really a thing)
A key employee or two who want to take over gradually, or
A desire to sell their book of business on Friday and catch a flight to Bora Bora on Monday
These convos are happening across industries and business sizes because - as my forehead wrinkles will tell you haha - we are all getting older. And if you have the privilege of building a successful business, you will eventually have to consider how to transition away from it.
So, here’s where I sometimes see owners trip up when considering their exit options:
-They’ll spend months talking to potential buyers, wining and dining with the team from ABC Capital, or chatting through scenarios with a key employee.
-They’ll draft spreadsheet after spreadsheet of different share purchase scenarios.
-They’ll read industry analysis to try to figure out how other business owners are doing it..
In short, they’ll gather a lot of info and have wayyyy too many options / variables to consider.. as in, they’ll get stuck in a bit of ‘analysis paralysis’. They aren’t able to move forward.
And when I see that happen, my first thought isn’t about valuation multiples, tax planning or deal structure.
It’s more like - have they decided what success looks like for them??
Because if they are looking for the “best deal”, how exactly will they know if they’ve found it? I mean, best according to whom?
It’s kind of like when someone asks me what the best restaurant in Saskatoon is. According to….
My younger sister who loves fast food?
My partner who eats fish 7 days a week?
Or me who could subsist on a combo of margherita pizza and chicken fingers ad infinitum?
You get what I’m saying (and no shade to my sister - I love a good Quarter Pounder with Cheese too).
But as an owner, you need to get clear on what’s important to you before you start evaluating your succession planning options. Is it:
Maximizing cash proceeds?
Preserving the culture they’ve spent decades building?
Protecting employees?
Creating opportunities for the next generation of leadership?
Leaving immediately?
Staying involved for a transition period?
Once those priorities are clear, the options in front of you won't change (at all), but your ability to evaluate them sure will.
Side note: interestingly, the thing owners often care about most - max cash proceeds - is also the thing they haven't spent the time to quantify and explore in detail. Stuff like:
How much of the purchase price is guaranteed versus tied to future performance?
If I stay involved for 3 years, what is my time and stress actually worth?
What happens if the buyer changes strategy, leadership, or priorities after the deal closes?
How dependent is the future payout on me continuing to work at the same pace?
How much risk am I taking by financing part of the sale myself?
What would make me regret this deal two years from now, even if the headline number looked impressive?
If only they knew a CPA turned management consultant who could help with this ….. :)
Friend - the goal with succession planning isn’t to discover the one and only objectively perfect option for transitioning your business. I don’t even think that exists. Instead, it's about finding that imperfect option that most closely aligns with what’s important to you, your financial objectives and the future you want for yourself and your team.