Get Ready to Pass the Baton
“There is one thing I can promise you: Every owner in this room will exit his business — voluntarily or involuntarily,” said Kevin Kennedy. Yet despite this certainty, a high percentage of contractors put off thinking about how they will leave their business, often until it’s too late to set up an exit strategy.
Kennedy is president of Beacon Exit Planning, LLC, a process consultant that provides written plans and support programs to private owners for succession and exiting their businesses. He was on hand at Best of Success to share his own experiences with succession and give contractors some key details on exiting their businesses in his session titled “Succession: A Journey From Management to Leadership.”
He first detailed the difference between exit planning — replacing income — with succession planning — replacing the owner. The exit strategy determines how to monetize the wealth trapped in the business and meet the owner’s goals, and can take 3-6 months to plan. Succession planning, on the other hand, can take 10 years or more. The company must learn to run without the owner, management systems have to be professionalized, the value of the business has to be increased, and new leaders have to be developed. “Managers and owners, you are in this together,” said Kennedy. “You are a team.”
He asked owners what their most valuable asset was, and answered that it was not buildings and equipment, customers, or relationships with bonding and banking companies. “Your most valuable asset is your associates,” he said.
The goal is to create a “sustainable business” that is continuously improving. According to Kennedy, a sustainable business means managing the long-term cultivation of associates while strategically managing risk and increasing the value of the business to create a culture of “continuous succession.”
The odds are stacked against succession and the risks are high, noted Kennedy. “Fewer than 3 percent of private businesses make it to the third generation,” he said.
For the owner, failure can mean liquidation of the business, overpaying on taxes and jeopardizing his financial future. For employees, liquidation can mean the loss of their livelihood. Kennedy urged attendees to consult professionals and get their help crafting a succession plan. He pointed to the attitude of the CEO as the most important factor for a successful generational transition, sharing a quote from Frances Hesselbein, who once said, “Successful transition is the last act of a great leader.”