Handing Over Your Keys
March 11, 2013
Handing Over the Keys to Your Shop: The bare basics of succession planning.
By John Zink, VP of Education and Programs Educational Foundation
Every business owner must recognize that one way or another, at some point they will not longer be running their company. Yet, it is estimated that four out of five contractors have no succession plan for their company.
These contractors may be risking their livelihood by not being prepared for an illness or serious injury that could keep them from running the company’s daily operations. They are also risking trapping themselves in their company; unable to retire because of a very real fear that the company will unravel without them.
Business owners owe it to their family and employees to have an emergency plan in place. They also deserve the ability to retire and enjoy the fruits of their labor. By taking some time to plan ahead, contractors can make sure that they are prepared for the day they hand over the keys to their shop.
Build an Emergency Plan
An emergency plan can help a business survive if the owner is suddenly incapacitated due to illness, accident or other unexpected event. Building a basic plan simply requires planning and some time to compile the information that staff would need in case the owner suddenly was gone.
- Gather in a single file the contact information for the company attorney, insurance agents, bankers, payroll management firm, bonding company, vendors, suppliers, subcontractors, major customers and any other contacts crucial to keeping the company running.
- A single accident has the potential to affect the entire management team. Make sure multiple people know where important records are kept. These records may include tax returns, insurance papers, the lease for your building, license numbers and back-up copies of important software and data, historical financial statements, payroll information and other paperwork the new management would require.
- Work with your employees to establish a chain of command. Create a written plan detailing who would be in charge and how responsibilities would be shifted if you were suddenly absent. Make sure all staff members clearly understand their potential new roles.
Create an Exit Strategy Step two for the owner is to build a roadmap of how to exit the business at a predetermined point in time with the assets equal to his or her stake in the company. The planning and paperwork already done in creating the emergency plan will help in the development of an exit strategy.
- Establish a long-term timeline for your exit. Set your retirement date, not less than a year out and ideally five to ten years in advance. You will need this time to make a smooth transition.
- Identify the future management team. Objectively examine who is most qualified to run the show after you are gone. If you have a son or daughter in the business, ask honest questions about their current and future ability to lead the company on their own.
- If the business would be best managed by someone else or by a team of employees, you must consider that option. Keep in mind that the company owner does not have to be the top level operations manager.
- Determine what your stake in the company is worth, who is going to buy you out and how they can do it. Consider working with a consultant to determine the buyout dollar value for your company.
- Potential buyers could be family members, a single employee, the entire employee team through an ESOP (Employee Stock Ownership Plan), or a competitor. Work with the buyer to find a buyout method that works for both of you. You will need a secured guarantee that you will receive your full payment, even if there are problems at the company after you depart. An attorney can help ensure that the agreement will stand up if there is a legal challenge later.
- Train your leadership team. Delegate increasing amounts of responsibility and important decisions to those who will be in charge when you are gone. Provide guidance and advice, but avoid running the show. You want your leadership team to gain all the experience they can before you leave.
- Show up less for work. Get in the habit of not being present. This will help the new leadership team adjust to not having you there to answer questions and will help you to let go.
When your retirement day comes, be firm with yourself and the new ownership that your exit means you are no longer running the daily operations of the company. A retired owner who never goes away is not retired and may be undermining authority of or acting as a crutch to the current owner. Hand over the keys and walk away. It may be the most difficult thing you have ever had to do, but if you done your preparations correctly, the company will run better without you there.
Get involved in other activities to keep busy or head to the beach and put your feet up.
You’re retired, remember?
John Zink is VP of Education and Programs of the PHCC Educational Foundation, which provides business management training for contractors and their employees. He can be reached at firstname.lastname@example.org or 800/533-7694. (c) 2013 PHCC Educational Foundation
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