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Succession Planning for Business Owners: How Do You Want to Exit Your Business?

Baby bees are truly exciting. They offer various lessons in organisational theory. The queen may be considered the head of the colony and yet, curiously, she may have little or no “say” in how she is substituted. If she dies or goes missing, the beehive create a new california king. Actually they create a number of potential princess or queen larvae and the first to mature kills all the others. However, the hive may also make a decision that the queen is too old or is failing and needs to be replaced and so they create a new queen. Or conditions may be so favourable that they decide to divided the hive and they create a new princess or queen and the old california king has to find a new home. In each case, it is the hive that “decides” on the fate of the queen, not the california king. Mardy Eger

It allows you to wonder, will not it, what would business be like if the personnel decided in order to was time to replace the best? Of course, creating a new leader in business is not as simple as feeding a larva regal jelly… 

Just like the queen, though, there are four ways that a business owner can get out of a business. These four exit routes we will call the four Ds (rhymes with Bees).

First of all, similar to the queen bee you could Die operating. This might not exactly be the choice of choice but if the time comes you won’t care much with what happens next (probably). And therein lies the condition – what happens to the business afterwards?

It is usually still left to your family to work through and if they don’t have the will or capability to deal with your business then it will be difficult for them and your devoted employees. You may have made provision for this situation with an insurance plan, shareholder’s agreement and interim management provision, but it’s not suitable for the morale of your employees. Naturally, even with the best laid plans, it might happen anyway, so it’s always best to be ready with insurance, paperwork and contingency plans in place. Yet , by choice, I assume that isn’t the exit most people are planning to achieve.

The second option is Dissolution. That is, at some point you may retire and you decide to close the business. All the hard work you’ve put in to building up will have been for free as your legacy goes away. In addition, if you have employees they would lose their livelihood. While this may be preferable to death in service, My spouse and i would suggest, as it involves a conscious choice, it still seems an attractive sad way to leave.

The next is Disbursement – that is lobby someone to buy it from you. It could be your management team, a distributor, customer or competitor or maybe someone who fancies jogging your business. This could be the biggest salaryday you’ll ever have. It may also be the most disappointing pay day likely to ever have if you don’t put the necessary preparation in to making your business attractive to a buyer.

There are a variety of factors that go into making the sale of your business as profitable as possible. Firstly, and perhaps obviously, the more robust your business is economically, the more it will be worth. Meaning good margins (for your industry), strong cashflow and data of growth and expansion potential. It also means having good financial management systems in place: a budget (that is used), a cashflow forecast, a capital plan, a list plan, a marketing plan, an income plan, and so forth.

Secondly it indicates that the business is not dependent on the owner due to its leadership. In other words, there is a management team in place. Businesses that rely after their owner to be there to control the day-to-day businesses typically command a deal price of 3-40 times lower than ones with a management team in place.

Talking of over-reliance, if the business is reliant on one, or a limited number, of key employees, customers or suppliers, it will also put a dent in the sale valuation.

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