“The longer you’re not taking action the more money you’re losing.”
Kimberly has been running her info-marketing business for 15 years now. She’s supported her family and saved a nice nest-egg. A scary bout with a heart problem sent Kimberly scurrying to develop a succession plan.
“I realized no one even knew my passwords. If I died, all my information would be locked up on my computer!” Kimberly said. “Entrepreneur succession planning for me would be a roadmap for my family and heirs to follow if I became disabled or died. And a plan for me when I get to thinking about retirement.”
Shared corporate knowledge.
First Kimberly took time to write down much of what was only in her mind. As the entrepreneur and creator of her business, so much was intuition and her own personal experience.
“I gathered together asset statements, bank accounts, partners, vendors, and all their contact information.”
She listed debts, repayment schedules, and plans for faster payoffs if needed. She made a folder and put life insurance papers, incorporation paperwork, and trust documents there.
Entrepreneur Succession Planning
“What would happen to my business if I couldn’t run it? Who could? What did they need to know?” Kimberly asked the tough questions. “I really didn’t want to think about all this. After all, I’d been healthy up to now. But I realized I wasn’t invincible.”
Fortunately Kimberly had an older child who was at college, but had shown interest in the business. “Because much of the work is online, he could do some things from college.”
Kimberly was surprised at what her son, Tim, knew about the business… and what he didn’t know. She set in place a plan to get Tim up to speed on every part of the business.
She also started working with her part-time employee, Lisa, to get her trained in every aspect of her business. “I wanted a back-up person who could take over in a pinch,” Kimberly said.
The Inheritance Plan
Even though Tim might take over the running of the business, Kimberly wanted her other two children to have their share of the business.
She called a family meeting to discuss who wanted to be involved in the business and how to divide the assets of her company.
As an entrepreneur, she’d never even had the value of her company assessed. “I had a figure in my mind, but the appraisal came in much higher,” Kimberly said. The other two children wanted the money but not the headaches of the work.
For Kimberly, the best solution was to create a company with shares. Each family member would inherit shares of the company. Tim would receive a salary and the shareholders a distribution.
This would allow Tim the chance to buy out his siblings over time if he wanted.
Feeling More Secure
“I never thought I’d be grateful for a heart attack,” Kimberly said. “But now I feel so much more secure and in control of the future of my company.”
Entrepreneur succession planning may look different than succession plans of other kinds of businesses. But it’s just as essential.
With her business organized and replacements in the wings, Kimberly feels more comfortable about the future. “It’s done,” she says. “Now I can focus on what I love— helping people succeed using my great products.”
If you’re an entrepreneur or solo-preneur who wants the confidence that comes from an effective succession plan, contact Joel for help.
Talkback: Have you created a succession plan for your start-up business? How did you find “replacements” for your key people?
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“You don’t want to be forced to make leaders in hindsight when there’s a crisis. The moment you become CEO is when you need to start grooming your next CEO.”
~ Bonni DiMatteo, President, Atlantic Consultants ~
Client William asks: I’ve built up a great business with blood, sweat and tears. Now I want to slow down a little. I don’t know if I should turn the business over to the kids or promote my best employee. How do I choose the best succession plan? I don’t want a family feud.
Coach Joel Answers: One of the hardest decisions of a small business owner is figuring out the best way for the company to continue to grow and prosper after you are out of the picture. You are right to be concerned. Here are some questions to help you make the best decision.
1. What is your vision? William, what is your vision for the company? Where to you see it going? How do you see it getting there?
When thinking of the best leader, you want someone who buys into your vision. Or you need to be agreeable to someone else’s vision. Take some time to map out your plan and strategy.
Then discuss it with possible successors. What is their reaction? Who is most enthusiastic?
Far too often the second generation does not handle the company as well as the first. You can improve the odds with a clear vision and buy-in.
2. What is their interest? As you look at family members, who is most interested? When you consider your employees, who has the most respect, ownership, or concern for the smooth running of the company?
Evaluate prospective successors based on their interest, involvement and commitment. Perhaps one family member shines in execution and another is excellent in sales and marketing. Which one is best for overall leadership?
It may be hard to be objective. Some may have a strong interest, but their skills are lacking.
However, if your successor is not fully committed to the future of the company, you will be disappointed.
3. Where is their skill level? There’s a tendency to feel that no one can do as good a job as you can. And that might be true. But if you’re serious about planning for your succession, you need to evaluate the skill levels and train in the weak areas.
Sometimes there’s a benefit to bringing in a non-family mentor or manager to evaluate and train your successor. Family dynamics may make it hard to transfer needed skills and knowledge.
The neutral manager can take the emotions out of the training and ensure the correct skill sets are in place for your successor—whether family member or employee.
The coach, mentor, or manager will also be in a position to assess potential candidates in a way you cannot.
4. Are stock shares a good choice? If you determine your children are not interested or qualified for your succession planning, how pass your assets on to them?
Consider issuing stock so they can own the company without having to run the company. You may determine if the stock will entitle them to a voice in the management or not. Of course you’ll base this decision on their interests and abilities.
When you asses and ask these questions, it makes planning for your successor a step-by-step process instead of an overwhelming burden.
William, there are many factors in determining succession planning for your small business. The most important thing is to start now. Write down your vision.
Evaluate possible successors. Starting immediately allows you time to train your replacement and ensure conflicts among possible successors are minimized.
Call to Action:
Let Joel help you assess your possible successors and establish the best candidate. Click here to connect with him.
What steps have you taken to choose the successor for your small business? Have you been happy with the result?
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