My 2 Cents | #10
Importance of Startup and Small Business Succession Plans
02/02/2024
Opinion of the Advisory Principal Gianfranco Miranda
In the relentless pursuit of growth, we meticulously attend to our business, addressing team objectives, financial stability, and fostering a thriving work environment. However, amidst this perpetual motion, we often overlook a crucial aspect – what happens when we reach our goals? 🤔
Will the business continue unchanged?
Are we inclined to embark on a new venture?
Is there someone ready to take the reins?
These questions constitute the core of a business succession plan, an aspect frequently overlooked in the startup and small business landscape. Surprisingly, even within the dynamic startup industry, few entrepreneurs take the time to formulate a concrete plan for the future. 📈
he Senate Committee on Small Business and Entrepreneurship has highlighted the challenges surrounding this issue, emphasizing the difficulties in establishing a proper exit strategy. Committee chair Senator Jeanne Shaheen (D-N.H.) remarked in a past hearing,
"They've dedicated most of their time in business to building a successful company, and they don't have the information or resources to think about next steps." 🧠
Presently, startups and small businesses appear to lack a comprehensive understanding of potential exit strategies and often shy away from seeking expert advice. This situation is exacerbated as numerous businesses currently find themselves in a precarious position, without a clear path forward.
The consequences of neglecting the "What's next" scenario could be severe:
🔹Firstly, numerous jobs may be at risk. Startups and small businesses are pivotal contributors to economic growth, and a lack of preparation could significantly impact employment.
🔹Secondly, a poorly planned exit could directly affect earnings. Imagine building the million-dollar business of your dreams only to realize, upon exiting, that a miscalculated valuation has resulted in substantial financial losses – a scenario that has unfortunately occurred far too often.
🔹Thirdly, businesses unexpectedly forced into closure due to external factors must be prepared for the aftermath. Understanding the necessary steps and having a well-thought-out exit strategy can help mitigate the impact of the worst-case scenario.
To aid in the efforts of succession planning, consider the following guidance:
🔍 Look for an Advisor:
Seek the guidance of an advisor who can provide insight into the intricacies of a successful succession plan. Advisors can play a crucial role in educating and mentoring entrepreneurs on the right strategies to adopt.
🌐ESOP (Employee Stock Ownership Plans):
Implementing employee stock ownership plans can offer equity to current partners and employees, aligning their interests with the business's goals. While startups may face challenges in this space, early team members can benefit from being prepared for potential company exits.
⏱️Do the 3, 2, 1:
Envision the pressure of making decisions in seconds. In a hypothetical exit scenario, give yourself 3 seconds to decide – whether to sell, transfer ownership to team members, innovate the business, or close it. Repeat this process two more times, creating three potential action plans for your succession planning.
Time is of the essence, and preparation is the key to navigating the uncertain terrain of business succession.
YouTube: Jeanne Shaheen Leads Senate Small Business Committee Hearing On Keeping Jobs In Local Communities
https://zelt.app/blog/succession-planning-a-musthave-for-startups/
