This is the first of an eight-part series on business transition issues. Subsequent parts will run about every three or four weeks.
Businesses, like individuals, change. A business owner can watch helplessly as change imposes disruption and heightens uncertainty. Or an owner can plan for change and carefully manage each stage of transition.
Most business owners arrive at a time in their lives when they want to cash in on the business they’ve spent a lifetime building. To do so requires sound planning and disciplined execution to continually build value.
To maximize the value of the enterprise, a business owner should address the needs of the five stakeholders: shareholders, management, employees, customers and suppliers. They all need to move forward in concert.
Toward this end, business owners need to define the goal or transition point to achieve their business and personal objectives while all choices and options are still available. Only then can the best options be used to meet the goals of the stakeholders.
The process should start with an assessment of the current situation, to evaluate how to achieve the desired results.
My colleagues and I developed the Seven Critical Issues of Business Transition Planning. These seven areas of critical performance are the guideposts for identifying the issues that most affect the predictability of the business and personal outcomes the business owner wants.
After the initial assessment, the business owner can identify where he should improve his existing plan to get where he wants. Each of the seven issues represents areas of performance that have a significant impact on the business owner achieving the potential value of his business, while also attaining his personal goals.
1. Leadership — Leadership is No. 1. First, evaluate the talents of the management team. Then define the knowledge and skills needed to create predictable success. Leadership has the greatest impact on the future of the business. Too often the business outgrows its resident management, which relies on intuition rather than knowledge and skills. That creates serious underachievement.
2. Relationships — Relationships create the conduit for great business results. Relationships have more potential impact on performance than most managers imagine. Building effective team skills unleashes vast potential.
3. Ownership succession — The only certainty in business is that ownership, at some point, will transfer. The transfer should be strategically planned and achieved and not allowed to be the victim of an involuntary act.
You can either take what you get or plan what you want.
4. Strategic planning and execution — High-level business achievement starts with a concise strategic plan. It needs to be aligned with stakeholders’ values and goals, then executed systematically.
Many owners have plans; few execute them well. In fact, 85 percent of businesses do not execute their strategies effectively.
5. Management performance and succession — Are the right people in the right positions, and are there successors in training? A focus on best business practices can improve and sustain high-level business performance and results. Building the right management knowledge and skills to execute effectively are crucial to building the value of the business.
6. Financial performance — Realizing the owner’s goals depends on corporate financial performance. Targeting and executing the right outcomes are essential in realizing positive financial results. An emphasis on using effective financial modeling and analysis helps produce predictability.
7. Personal financial security — A successful business transition plan can’t be designed without knowing why the owner is working so hard. Meeting the future financial and emotional needs of the business owner is critical to the process.
In the next few columns, I’ll take a close look at each of the seven critical issues to help you maximize stakeholder value.
Hal Johnson has been CEO of eight companies and has authored two books on mentoring business performance. He is chairman and CEO of LeadershipONE, a business transition consulting firm. He may be reached at (916) 391-3042 or at [email protected].
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