Helping your business owner client establish priorities with their succession plan can be both challenging and rewarding.  For many trusted advisors, taking that first step can seem overwhelming at first.  Here are a few steps you can take to help your client identify their priorities and establish a game plan that aligns well with their objectives,

 

Help them answer the question “What is it that I really want?”

 

Posing this question to any business owner client who is considering an exit or succession plan can help start an effective dialogue.  If there is no clear answer, ask them what their “ideal” scenario looks like.  As you know in guiding planning discussions, powerful discussions can happen when we begin with the end in mind and walk backwards.  Find out what they have explored in the past, ask about “informal’ offers they may have received recently and what they thought about them. Ask about their timeline, or what they are thinking in terms of stepping out of their seat and into a new chapter in their lives. If the timeline does not seem clear, go back to the “ideal” scenario questions.  These questions will begin to define a path that will take shape over time.

 

Do you plan to keep or sell the business?

 

This question that can help your client identify a path or a series of paths that are best for them.  Often times this exercise can help define a client’s feelings about the next generation of ownership, whether the new potential owners are current executives inside the business or are located outside of the business(friendly competitor).  If a client’s desire is strong towards finding a way to keep business ownership within the current group of senior executives, exploring business valuation and financing strategies are two steps your client can take to determine how viable this path is.  This also requires having frank discussions with senior leadership and and ensuring they are ready for this.

 

If the desire is to sell the business to a friendly competitor or begin discussions with potential buyers, helping your client answer the following questions will be critical in defining next steps.

 

• To whom?(friendly competitor, strategic partner, holding company, etc.)

• How much?(valuation that is fair to owner and brings prospective buyers to the table)

• What are the terms of the sale?(down payment, ongoing annual payments, earn out, etc.)

• Will I still be involved as a consultant and for how long?

• How will my key people respond to this?

 

Do I have a contingency plan in place today?

 

Asking your client about their current contingency plan is also very important.  While asking questions about their long term objectives and “ideal” scenarios, be sure to ask them what would happen to their business today if they were no longer here to run things.  If there is a buy/sell agreement in place, be sure to ask them about how it is funded.  Also ask about what the company is doing to help ensure their key people will stay through the loss of an owner or a change in ownership.  Try not to fill in the blanks here, but let your business owner client think through this.  Even if you have the answers, let them tell you what will happen and “how” their plan will unfold.  If there are gaps, you can address them together and tie the short term solutions into their long term objectives.

 

How will I ensure my key people will stay through this transition?

 

This is often a very important part of a successful succession plan.  Owners realize their key people are essential to the success of their business today and in the future.  Building an incentive and retention compensation  plan for key leaders will help to ensure a sound succession plan.  This is true for situations that involve transitioning ownership to current inside leadership(Keep) or selling the company to a friendly competitor or other outside entity(Sell).  Help your client understand this is a priority and explore various strategies available to them, such as executive bonus plans, non qualified deferred compensation plans, supplemental executive retirement plans(SERP), etc. You do not have to be an expert in these plans.  Reach out to a trusted resource who can bring in the experts.  

 

Can I create a new entity that ensures a sound succession plan?

 

Many businesses today consider the creation of a new entity such as a ESOP to ensure a succession plan for the next generation of ownership.  Exploring an ESOP takes time, and requires bringing in an expert to assess the validity of this strategy.  There are many companies that have benefitted greatly through changing their ownership structure to an ESOP.  ESOP’s can create a perpetual succession plan for shareholders.  They can also create incentives for recruiting new executives, as well as ensuring a continued level of involvement from current shareholders. Exploring an ESOP can be a worthwhile endeavor for a business that is profitable, shows consistent cash flow, and has a strong succession management team in place.  Businesses typically with more than $1mm of EBITDA and other characteristics I mentioned are ideal for consideration.

 

In summary, helping your client establish priorities and potential solutions with their succession plan will strengthen your client relationship and lead to other planning opportunities. This process takes time, requires patience, and also involves bringing other experts to the table.  Helping your client find clarity can be incredibly rewarding. As you know well, the path will differ for each business owner, given their goals and objectives, their corporate structure, and their desire to remain involved with their business through this transition.  Remember that you do not have to have all the answers, just a desire to help them see beyond what they can see today.  Take that first step, reach out to them, and ask a few important questions. Help them establish their priorities and explore each potential path.  Bring in other experts when you need to. Be a friend, and the solutions will come.