Why You Should be Seriously Thinking About Succession Planning NOW... Even if Your Time Horizon is 10 or More Years Out
Most of us dream of the string of days where we won’t have to deal with clients and candidates ever again. The day where we sell our firm for millions, buy a small yacht and tour the Caribbean.
The problem is most recruiting firm owners are ill prepared for anything close to this reality for several reasons. In this two part article I hope to share some insights to help you prepare an exit strategy for your business even if your time horizon to leave this business is a decade more out.
As a matter of fact the longer your time horizon the better off you are simply because you have time to implement the right systems and structure into your business that will make it the most attractive to a potential buyer. Additionally, you have time to really do some introspection on what life will be like after you leave your firm.
In part one of the articles I will tackle helping you define the next steps AFTER you transition out of this business and in part 2, next month, I will outline the things you can do NOW to begin to maximize value of your firm and some ideas on structuring the deal.
The first step in a successful succession plan is to spend some time exploring the answer to “What’s next in my life?” Most people admit after selling a business that they were not at all prepared for what was next in their life/career. If they made no plans, often they were incredibly bored and unfulfilled just a few months after they left their firms.
I had the great pleasure of having lunch with Bob Metcalfe, the inventor of Ethernet (the way computers talk to each other) and co-founder of 3Com in the early 90’s. Bob sold out his shares for tens if not hundreds of millions of dollars around the age of 40. At the conference we attended he was telling us how he was founding a brand new company. During lunch I asked him why, a man of his means, a man who NEVER had to work again was going through all the aggravation to start another company?
Bob told me he had spent a lot of time in Hawaii and on the golf course. He told me he didn’t anticipate getting bored as quickly as he did and that he needed his next big challenge.
When thinking of “what’s next?” one needs to consider the ideal lifestyle you seek both now and in the future. The trend for baby boomers and Gen X is that we will tend to spend MORE in retirement not LESS. This is in stark contrast to what we have been told up to now.
Here are some questions to ask yourself:
- Where does your passion lie?
- What difference do you want to make in the world? In your community? In your family? In your church?
- Where are you living?
- How will you challenge yourself?
- If you could do anything you want, what would that be?
There is a fantastic book called Halftime by Bob Buford that digs much deeper on this topic. In this book the author shares that in the first half of our lives; our career is busy with “getting and gaining, earning and learning”, doing what you can to survive while clawing your way up the ladder of success. The second half of life should be about regaining control, calling your own shots and enjoying “God’s desire” for you to serve him just by being who you are, by what he gave you to work with.
The answers to these questions are just a starting point to get you thinking. Don’t expect to get the answers immediately, but I challenge you to invest some “thinking time” to explore what this could look like for you.
Next, what is your “number”? What is the TOTAL amount of money you need to accumulate to finance the above vision you generated for yourself? There are a few different ways to approach this. One approach is to define the “number” with no additional earned income. By that I mean, you will be generating all your income passively from dividends and interest and that you are officially “retiring” from making a living.
The other scenario is that you will plan on making some money, but potentially significantly less than you make running your firm. What does your “number” need to be in this scenario? The easiest way to get a true definition of a “number” you can go to the bank on is to sit down with a financial planner and have them analyze where you are in life right now and what you need in the future to live the lifestyle you designed.
Once you define “what’s next?” and you determine the assets you need to acquire to make this a reality you then need to define the time frame you want to make it happen in. Do you want to exit your firm in three, five, ten, fifteen years? Again, work with your financial planner to build the financial runway to get you there.
Do not take these steps lightly! Planning for a successful succession from this business STARTS with developing a clear vision on the role you want to play in your firm now and the role you want to play in your life after the recruiting business!
Next month I will share with you the key steps setting your business up to maximize its valuation. I’ll also share with you the lesson that I learned that the way to grow a great business is to set it up as if you wanted to sell it! See Part II...