The following was recently featured in Associated Subcontractors Alliance’s Just Briefly Newsletter.

You have undoubtedly heard of Continuity & Succession (“C&S”) planning, but the real question is, have you thought about it? Or an even better question – have you started it? If you look at most studies out there today, there’s a general consensus that 95%+ of business owners agree having a C&S strategy is important for both their future and the future of their business. However, the same studies would show over 70% of these owners have no written transition plan. The truth is, most business owners know they need to do it, but there’s a multitude of reasons why they haven’t.

The first – it’s scary. Most business owners don’t want to think about the day they [can] no longer work, because their business is their passion. Moving on to the next chapter, or “third act” of life, can be difficult…but not nearly as difficult if you’ve planned for it. This is where C&S planning starts, and there are three prongs you will need to evaluate: Personal, Business and Financial.

Sounds simple right? Maybe not so much if you truly want to maximize the value of your business before you exit, leave a legacy for your family/community (or both) and ensure you find happiness and satisfaction in whatever you decide to do in the next chapter. It takes time to build out these separate but very much commingled plans, which leads to the second reason most owners have not started the process – time.

If you own a business, you likely wear many “hats”, and finding an extra couple of hours each week likely seems impossible. That’s the first part. The second part of the “time dilemma” is the actual amount of time it takes to prepare and execute a C&S plan. Most owners think, “oh, I’ll get to it when I’m a year or so from retirement.” This may be brutally honest, but that won’t work. In reality, it can take twelve months or more to develop the plans (remember – personal, business, financial) and traditionally between 5 and 7 years to execute on that plan. So conservatively, let’s say six years – feeling a little behind yet?

The truth is, yes – you can wind down or liquidate (not sell at market value) your company in a year (probably). But if any of the earlier points are important to you – maximum value at exit, legacy, happiness in what you do next – you need to plan for it to take considerably more time.

Now that we’re all ready to start the process, let’s differentiate between Continuity and Succession. Continuity is the idea of the business continuing to operate if something unexpected or catastrophic occurs. Think of it as your contingency plan – if we lose this customer, if our system gets hacked, one of our key managers becomes disabled, etc. This type of plan should exist for all businesses, and arguably, it should exist from day one. 

Then there is Succession, which is the transfer of the business to the next slate of leadership. Notice I didn’t use the phrase “next generation of leadership” – sometimes that is the preferred option, but with up to eight strategies for exiting a business, there may be other options that make more sense. A succession plan takes time to develop and execute because wisdom needs to be transferred, relationships need to evolve, and equity needs to be built. As mentioned above, these plans take time to create and put into practice, so getting started now will benefit many owners looking to transition their business in the next 5-10 years.

So how do you go about C&S planning?  First – you need to complete an assessment, or really, multiple assessments. These assessments can be in many forms, but working with someone who has the knowledge and tools to quantify an owner’s personal, business and financial readiness will provide the most comprehensive review of what the next steps will be. It also helps to have an outside advisor without the same personal bias to ensure these assessments are completed objectively and not through rose-colored glasses. If you’re looking for someone with this expertise, we’d be happy to discuss your C&S needs and provide guidance for building a successful plan.

In future articles, we will provide additional insights into C&S planning, diving into the readiness assessments in more detail, steps to take after completing the initial assessments, what your transition team (yes, multiple advisors) should look like, and the pros and cons of currently available exit options. For now, my hope is those who have read this feel a new urgency to get started on the process. If you do, I’d encourage you to start looking for people who can support you in evaluating your personal, business and financial readiness.