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Sixteen Ways Succession Planning Helps Your Business Now
David Wolfskehl November 26, 2010 — 1,004 views
I continue to be surprised by the number of business owners and partners who believe they do not need to be concerned about maximizing the value of their firm or with succession planning yet. The truth is that succession planning forces owners and partners of firms to focus on value drivers. When you work on a succession plan, you work to maximize the long-term value of the firm. But all of this attention to management, value drivers and maximizing the long-term value of the firm also has powerful short-term benefits that affect both short-term value and short-term profitability of the firm.
Regardless of the way you plan for the future of the firm - succession, merger or sale - there are three key areas that are part of the way you maximize the value of the business.
1. Management of the Firm.
The value of your firm will be directly tied to the management team you have in place. Who are the key people? Do you have the best people in place? Do you have plans in place to train and mentor the leaders of the future? How much of the value of the firm is tied to the owner, or the senior or managing partner? How much risk is there that the firm will not be able to continue without that individual?
Your firm needs to ensure that a solid and reliable leadership team is in place. You also need to consider carefully the other members of the management team who are critical to the continuity and productivity of the firm. Not only do you need top leadership; you also need a deep and well-defined team of individuals with clearly defined responsibilities and accountabilities.
You also need, where advisable and possible, to ensure the continuity of the firm with strong employment agreements, effective no compete provisions and positive compensation incentives. In some cases, you might also need "golden handcuffs" in the form, perhaps, of permanent insurance the firm purchases on the employee. If the employee remains with the firm, s/he gets the money. If the employee leaves, there is no money. This approach might be particularly important for the firm's rainmaker, for example, or for a partner who is a recognized expert in a particular niche.
2. Put Appropriate Processes and Procedures in Place.
Defined processes reduce risk of error or oversight in implementation of policies and in performing the work of the firm. Processes and procedures also reduce corporate and individual risk, eliminate confusion and a potentially large number of mistakes, and protect the character, ethics and image of the firm. Policies and procedures that improve quality and productivity and reduce risks to the firm are the basis of operational excellence.
Processes and procedures also should apply to such considerations as principles of customer or client interactions, work processes, decision-making models, new client qualifications, employment and management standards and requirements, profitability goals, operations standards, and management of daily operations. Not only will these processes and procedures result in a smaller number of fires reaching upper management, they will improve productivity (and, therefore profitability) throughout the firm.
Customer-focused policies and procedures should also be in place. In addition to new client qualifications, there should be a defined process by which new clients are brought into the firm. Customer retention policies should also support a relationship with each client or customer and a clear process to manage the relationship through the changing needs of the client.
3. Sales and Marketing.
The sales and marketing issues you will examine in preparing a succession plan will focus on your efforts to achieve a diverse customer base, and setting goals for the number of new clients you bring in each year and the portion of the business they represent. What proportion of your clients will represent recurring revenues? What proportion of your clients account for the largest part of your revenue stream? Are your revenues too highly concentrated in one customer? If so, the business is at risk if that client leaves and the value of the firm is lower.
Your firm needs a clear and process-driven growth strategy embraced by all members of the firm. The strategy needs to build from an honest appraisal of the current client base and outline the steps the firm will take to reduce the number of desirable clients who leave the firm each year by understanding why they leave and taking steps to eliminate the cause. The growth strategy will establish standards for new client acceptance and steps to diversify the client base, minimizing concentration as quickly as possible.
The firm will need to evaluate the sales and marketing strategy. First, you must ask if you are trying to sell low-cost products or premium-priced high-value products and services. A strategy focused on selling premium products will immediately increase cash flow and generate higher profit margins. Second, there must be incentives to cross-sell and up-sell products and services, particularly those that generate premium pricing and higher revenue.
The short-term benefits of succession are clear and numerous: Here are the Sixteen Ways Succession Planning Helps Your Business NOW
Clear responsibilities and accountabilities
Increased firm value
Smoother daily operations
Consistent growth of the firm
Higher rates of Customer/Client retention
Employee development plans in place
Reduced risk of losing partners
Increased cash flow
Improved customer/client satisfaction
More opportunities to cross-sell and up-sell
Succession planning is a necessity for every firm. Deferring or delaying puts the partners and the firm at risk in the event of an unexpected tragedy of any kind. But deferring or delaying the creation of a succession plan also short-changes the firm in over a dozen ways. If you understand this, why wait?
David is President and CEO of DGW and Associates. This year, the company has launched The Succession Planning Group maximize the value of their greatest asset – their . 80% of small business owners have no succession plan - they are putting their families at risk, and they are not maximizing the value of their businesses - The Succession Planning Group was formed to protect these familes and to help the business owners