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The incredible baby boomer retirement wave has descended on us. A recent Census Bureau Data report suggests that 44% of boomers have attained retirement age, and eighty million more are set to join them. Despite this, a Heidrick & Struggles review covering 140 C-suite-level executives from private and public institutions revealed that more than 50% had no immediate successor.
According to a SCORE study, this problem is even more pronounced in SMEs, as over 33% of entrepreneurs lack retirement savings, and 12% don’t intend to retire. However, research shows that failing to prepare your business for succession has dire consequences on its sustainability.
Here are a few succession planning strategies businesses should take to preserve the business’s wealth and prepare for business continuity.
As you know, Steve Jobs, Apple’s co-founder and CEO, passed away in 2011. Though he was regarded as the visionary behind the company’s success, he had left behind a strong succession plan that involved identifying and grooming key employees to carry on his vision.
Tim Cook, Apple’s COO, was named the new CEO, paving the way for a flawless transition that grew the company to even greater heights. Johnson and Johnson is another company with a good history of successful succession planning.
These two examples exemplify companies that view succession planning as a proactive approach to business growth rather than a mere contingency plan. Yet, according to research by PwC, a mere 34% of family-owned businesses have a succession plan.
“By initiating this process early (ideally 5 -10 years before), businesses can strategically align their retirement goals with the company’s growth objectives,” says Lauren Altschuler, CBI, CEPA, and M&A Advisor. But, any succession plan should thoroughly assess personal and business finances.
Working with trusted financial advisors can help business owners create a risk- and return-adjusted retirement portfolio.
A SCORE report indicates that 18% of business owners plan on pensioning themselves using the funds they receive after selling the business. “Yet, many entrepreneurs underestimate the task of selling a small business and monetizing it,” says Dave Yeske, CFP. Research from the Exit Planning Institute shows that only a tiny fraction (20-30%) of businesses on sale are bought.
Properly valuing your business is critical for a smooth ownership transfer because:
Your clients care to know when you’re going to retire. Therefore, notify them ahead of time about your retirement plans. Guarantee them that your business will continue to provide the same quality of service and introduce them to the transition or succession team.
You should also address any lingering concerns they might harbor and assist them in finding alternative service providers if they request it. Failure to do so can cause internal chaos, a decline in stock value, and a loss of current and future business.
During this transition period, maintain open lines of communication with clients. Update them on crucial milestones and promptly address concerns to ensure a smooth client relationship transfer to your successor.
Growth planning for business owners isn’t an optional undertaking; instead, it’s a strategic imperative. By planning early and adapting accordingly, entrepreneurs can step into retirement confidently and prepare for the next chapter of their lives. Implementing the above succession planning strategies is the first step in securing your business’s future.
