Breaking the inertia: developing a succession plan amid a pandemic

A successful succession takes months if not years. Get started now
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You’ve spent your life building and nurturing your business, establishing a brand from a wispy thought to a trusted name among your customers and prospects. You’ve built a culture of loyal employees, weathered wild challenges, and seized risky opportunities that grew your business. You’ve experienced the high of grand achievement and the low from a miserable loss.

And just when you share with friends how wonderful things are in your business, out of nowhere comes along another gut-wrenching event that’s no fault of your own—a global pandemic.

You toss and turn in fitful sleep. During the day you breathe in a stuttered cadence and frequently get trapped in circular thoughts, all the while in a blind gaze with friends and family. There are aches in your neck and sagging shoulders. You’ve had enough.

The COVID-19 economic curtain of uncertainty and erosion of your financial balance sheet may have you saying to yourself, “That’s it, I’m done.”

While your spirit is beckoning you for change, you’re frozen by the “owner’s dilemma.” You want change, but change to what? If not this, then what? Who do you become? What’s your purpose and identity?

This may be augmented by your concerns for your shareholders, loyal employees, customers, and other business relationships. How can you step away from a lifetime of effort and connectivity?

You Must Break the Inertia

First, a successful succession takes months if not years. Get started now. “Preparation for ownership succession requires an intentional and well thought out plan that is executable,” says BKD partner Robb Conner. “BKD has a group of trained facilitators who help business owners develop a succession plan using a phased approach. Our integrated planning is most successful when we can start between two to five years from an ownership transition event.”

BKD Capital Advisors president Tony Giordano says, “A well-thought-out and executed process, if all goes smoothly, is typically seven to 12 months. The most successful transactions occurred when the ownership had purposely enhanced the profitability standards of the business, reduced the potential risk profile, and was enjoying solid momentum over a three- to five-year window.”

An employee stock ownership plan (ESOP) may be a strategic option to consider as part of an ownership succession plan. Cara Benningfield, BKD partner and ESOP practice leader, says, “The average time for planning and executing a successful ESOP transaction varies. Based on our experience working with hundreds of clients, the typical timeline is in the range of nine to 18 months.”

Designing a management buyout requires considerable planning for both leadership readiness and the reality of needed capital. While the spirit may be strong on the part of management, the cash to meet the purchase price for the business is frequently a substantial gap. The business agreement alone may take four to six months, and creative and mutually beneficial solutions, such as equity in exchange for EBITDA growth, is usually a multiyear effort.

Second, you need to set a date. By establishing a specific deadline to be fully transitioned out of the business, such as your 70th birthday, you establish a psychological goal. From this declaration, you can then develop a reverse timeline to prepare for your next phase in life. It encourages a focused effort to continually improve on processes, groom your future leaders, and enhance your transferable value. And along the way, if a highly lucrative and unsolicited option arises, you’re prepared to seize the moment. Conversely, as you approach your target date, it may become clear you need to ride along a bit longer. You’re in control, and you can change your mind.

Third, you should have a vision for your future self. Develop a compelling and fulfilling next step in your life post-business. What will fulfill your ego and sense of self-worth? Liquidity and reduced risk in the transfer of your business are certainly a positive outcome, yet they don’t necessarily feed the soul.

Consider options that satisfy your ego and help others. Mentor socially underserved individuals interested in improving themselves and their position in life. Share your experiences, give feedback to their challenges, and provide resources through your relationships and business network. Consider serving on an advisory board, assisting a startup business, or volunteering as an executive in residence for the Service Corps of Retired Executives. Put your muscle behind a compelling charitable organization close to your heart and make a real difference in those in deep need of support.

Are you ready for new enthusiasm and a jolt of endorphins to get you jumping out of bed again? Start now! Seek and engage a trusted advisor to plan your future, set a date for your next step in life, and create a vision for your future self.

Screen Shot 2020 10 20 At 3.29.32 Pm David Rodarte is a director with BKD CPAs & Advisors.

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