November 9, 2017

9 Milestones of A Successful Transition

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Mark’s three-part succession planning series will examine why a succession plan is important, questions business owners must ask themselves before planning, and elements of a succession plan.


Succession plans are not “one size fits all”. In fact, there are many different types of succession plans depending on the objectives of buyer and seller. Like establishing your values and culture, setting the course of your succession plan is a deeply personal process that should reflect your history, leadership and vision for the future.

It takes time to transfer your business – even to family members or other insiders. Successful transitions span 3 to 8 years on average to prepare, plan and execute. Moreover, when the transition involves the transfer of cash over an extended period of time, that fiscal plan will require significant due diligence. Without careful forecasting and financial analysis, payouts to the exiting leader (typically a combination of investor cash and company profitability) may hinder cash flow and debilitate the business. Successful transitions gain stakeholder consensus early, with a mutually beneficial and financially viable plan. Working together without conflicting motivations, outgoing and incoming leaders have more time and energy to focus on a smooth operational transition and future continuity.

Good succession plans are distinctive to each company, but the milestones within the process are fairly similar:

1.  Define your financial objectives to create clarity. This requires some personal soul searching, but is essential to establishing financial security for the company as well as yourself. Owners should quantify a timeline for exit, a sale price based on appropriate valuation, and rewards for key employees.

2.  Get a business valuation done by a professional business valuator. Only a seasoned professional is qualified to objectively apply a variety of valuation methods to determine a fair price for the business. Using a third-party expert will eliminate bias and keep buyer and seller motivations in sync.

3.  Develop solid, credible financial models which could include any combination of individual funding, bank debt funding, company cash flow funding and share transfers. Develop multiple scenarios for the planned payout schedule. In short, determine how and when to pay out the exiting stakeholders.

4. Develop a strategy to assess the new leadership’s professional and emotional growth opportunities. Understanding the current cultural, operational, and emotional drivers within the company helps identify any possible voids that could become apparent when key leaders exit the organization. A clear strategy which identifies what roles and responsibilities will be assumed by whom needs to be established. Follow with a corresponding transition and training plan to address these gaps and ensure smooth continuity.

5. Determine a plan to minimize transactional taxes. Organizations and individuals can get double-taxed when the transfer of a business takes place. Different types of corporations have different tax implications, and it is important to work with the company’s accounting firm to determine the smartest way to transfer shareholders.

6. Establish succession protocol within the Business Continuity Plan (BCP). Similar to managing risk in times of emergency or disaster, the BCP should allow exiting leaders to react and engage if company performance falters during the transition. It should identify what happens in the event of an untimely death, disability or departure of key leaders, and also define voting and/or decision-making control. The BCP ensures that business can continue and management maintains functionality, credibility and vision during this potentially traumatic time. As the essential company playbook, the BCP will drive communication to all interested parties, identify threats, define areas of responsibility and outline recovery measures.

7. Institute post-sale agreements on employment, consulting and competition. For group clarity, these agreements are a must and will define the roles of all stakeholders after the sale. Those remaining within the organization after the transition should execute employment agreements covering a defined term in order to secure the company’s stability and success. While exiting stakeholders should also have a plan for continued services, these arrangements generally take the form of consulting agreements or board assignments. Real business knowledge has likely never been written down. Learning from, and retaining their strengths is essential in managing risk while new leadership is established.

Non-compete agreements may seem unnecessary in many circumstances. However quite often, former business owners long to return a few years down the road. Should they decide to re-enter the market, a non-compete agreement establishes the boundaries and limitations of using proprietary knowledge.

8. Clearly communicate the plan to employees, your trusted advisors (bankers, attorneys, accountants), and key clients. Corporate transitions can initiate fear and uncertainty in the minds of customers and vendors. Draft sample communications for each of the possible audiences that outlines the details and vision that the successor has for the company. Addressing the change proactively via clear communication strategy dispels most rumors and assumptions.

9. Monitor the plan at least quarterly and institute course corrections as needed. Just as companies aren’t static, neither should the succession plan be. Objectives, goals and roadblocks are constantly changing and shifting. When these changes happen, the succession plan should be updated to assure that the team works together fluidly and in sync.


Mark Schwei is an equity partner and member of Consolidated Construction’s executive team, which designed and implemented its own succession plan strategy. He is an engineering graduate of Marquette University and imparts his love of details, practicality and ingenuity on matters related to company leadership. Mark continued his executive education through the University of Wisconsin on the subjects of Business Planning, Mergers and Acquisitions, and Sales and Marketing Management, and received specific training in the area of succession planning from national experts. Mark is a leadership mentor and business coach to chief executives as current Chairperson at The Executive Connection (TEC).