There comes a time in everyone’s life and business to consider moving on, whether because of the desire to explore other opportunities, to retire or the result of other circumstances. Regardless of why, it’s best to be prepared.
Preparation for the future of your business is often called succession planning. Succession planning has many aspects, including financial, staffing, structure, organization and even marketing.
Unfortunately, it is often the case that a small remodeler or other business owner simply closes the doors, leaving with whatever savings they were able to accumulate. Although this decision works for many, it is possible, no matter where you are in the cycle of your business, to plan for its long-term continuation.
Although an out-right sale of a business isn’t always possible, with the proper pre-planning, you can set your business up for a ready buyer. Often that buyer is someone who is already part of the business, such as an employee with the potential and desire to run a business, or a family member
Over the years, I have had some clients who had the foresight to institute such planning. In most of these cases, the owner named a key employee as a “partner” years before they were ready to turn over their businesses. The simple action of naming the employee a partner did far more than set the business up for future sale; it also resulted in a positive change in the attitude, willingness and responsibility level of the employee. This action instilled a sense of pride and commitment in the new partner.
To ensure success of such an arrangement financial and organization planning is necessary.
It is best to consult with a financial planner or your accountant to ensure that the financial agreements you make will be beneficial to both you and your partner. Please note that when I refer to partner, I am not trying to imply that your employee is suddenly a 50 percent partner. In fact the opposite is true—the level of partnership usually starts small and increases over time.
Key to the success of such an arrangement is the structure and organization of your business, together with your training plan.
I recently spoke with a client I consulted with seven years ago. When he and his wife first came to me, their purpose was to put organization in place—specifically for succession planning. They realized they had a good business, but without planning, they would not be able to guarantee its continuation.
This idea was expressed by L. Ron Hubbard in his writings on management and organization: “There is a difference between directing and doing, which some people have trouble separating apart. A person in charge of an activity is sometimes found deficient in organizational understanding and so tries to do all the actions himself. …
“True, an active and competent person can do things better. But he can really never do more than he can do. Whereas a well-organized group, each with specialized functions, coordinated by the in-charge, can accomplish many times the work only one can do.”
The organization program we created consisted of identifying all the functions and key individuals to perform those functions. After establishing the overall structure for the business, the owner and his key employees then worked on creating the detailed hats, policies and procedures.
When we spoke recently, this business owner told me that he had just finalized the arrangements for two key people to take over the business. One of the new owners is his son, who had recently joined the business; the other is a long-time employee.
My client told me that the systems we put in place years ago had not only enabled them to run an efficient and profitable business, but provided the needed model, policies and procedures for the ultimate business turnover.
The structure, based on the Hubbard Management System, provided the foundation to continue to build the business. It consisted of fully documented and implemented policies, procedures, hats and statistics for running the overall business and every area of the business.
In defining the structure, we divided the business into its major functional areas–called divisions. These included executive, office, sales, finance, production, quality control and marketing. For each division, we defined the purpose, functions and products (end results) and then further broke down the divisions into departments and hats. The hats were far more than job descriptions; they consisted of the purposes, products and all the responsibilities, functions and statistics for each position. Once the hats were created, the client then established the various procedures and any checklists needed to successfully “wear the hat.” By getting the employees involved in creating the hats and writing their procedures, the client was assured of buy-in from the team. Successful actions and procedures became policies, and unsuccessful actions were eliminated. Part of the success of this process is the realization that just as the economy and business changes, so do some of the hats and procedures. Although the changes may be minor, it is important to allow for the evolution and growth of the business.
In reviewing your business, we recommend that you identify the structure and people within the business that will help you build a strong, self-sustaining business.—Lorraine Hart
Lorraine Hart is the president of Ideal Consulting Services, a business consulting firm. Lorraine is a past president of the NYC/LI Chapter of NARI. Lorraine can be reached at firstname.lastname@example.org.
For more on succession planning, see “Planning a successful exit strategy.”