Although most companies have a formal business plan, few have a transition plan—which is equally important. A business plan focuses on the current direction of the company and a transition plan focuses on the future of the business. A transition plan dictates how ownership of the business will pass to the next generation of leadership.
Consider how the transition plan will fund owner retirements and provide financial security for their families. Most owners will rely on the income from the business to fund their retirements. Therefore, it is important to ask the following questions when developing a transition plan.
A transition plan should clearly identify the capabilities, roles and talent needed to lead the company. It is important to match potential candidates’ temperaments and skill sets to the job. Money and resources will be invested in grooming the successor. Make sure the right person is selected for the job.
Strategic companies identify talented and capable leaders 5 to 10 years before they are needed to serve. It could take this long to prepare the right person for the job. A development program is recommended to ensure that the successor is ready when the time comes. This could include:
It is also advisable to have the new leader in place at least one year before the owner leaves the company to ensure that the transition goes smoothly. This is especially important when transferring critical business relationships.
Owners should discuss with each other and key employees their expectations, vision for the company, and the intent of the transition plan. Transition planning requires leadership to be open-minded and honest about the possible impact on:
Transitioning leadership is a business decision, so everyone involved should have the opportunity to voice their opinions and decide if they agree with and support the plan. If needed, arrangements will have to be made to buy out owners who decide that the proposed transition plan is not in their best interests.
Owners need to know exactly how much the company is worth before implementing a transition plan. A qualified expert should do a proper valuation of the business to determine its fair market value five years before the transition. A valuation can identify weaknesses in the business. Armed with this information, owners can develop processes and procedures to improve operating efficiencies, reduce costs, mange cash flow and introduce other initiatives to increase profits. Owners should discuss the transition plan with their lawyer, insurance agent, and financial advisor to ensure that the plan is viable and can be executed according to their wishes. It is also a good idea to address retirement and estate planning along with a transition plan.
Written by {{author.AuthorName}} - {{author.AuthorPosition}}, {{author.Company}} {{author.Company}} Contact Info: {{author.OfficePhone}} , {{author.EmailAddress}}
{{comment.Text}}