Minimizing risks is a goal that many business owners have. But sometimes, there are instances where taking calculated risks becomes a necessity, especially when you are planning for your eventual business exit.
Let’s look at three calculated risks that you may need to consider as you plan for a successful future outside of your business.
1. Giving Up Control (in Pieces)
Giving up control of the business is a crucial aspect of successful Exit Planning.
The reason that giving up control is so important is fairly simple: If the business requires your presence to be successful, you can never really leave it.
Even if you’re a business owner who plans to die at your desk, concentrating all control in your hands can have devastating effects on your business, your employees, your family, and the people who rely on you after you die.
This doesn’t mean that you need to give up all control of your business at once. The Exit Planning Process encourages business owners to slowly transfer responsibilities to others so that when the business owner is ready to exit, the business can still thrive without the business owner.
Taking this calculated risk can position you and your business to reap multiple benefits:
- A business that does not rely on the owner’s presence to achieve success tends to be more valuable to potential buyers, which can help you achieve your financial security goal.
- Transferring your responsibilities to other people could allow you to focus on what you love most in the business while allowing others to focus on the things you may not like about running the business.
- Having others who can run the business when you aren’t there allows you to create contingency plans if something unexpected were to happen to you, such as a sudden death, incapacitation, or other event that prevents you from running the business.
Giving up control in pieces often takes the form of installing a next-level management team. The next-level managers are the people who will run the business when you eventually leave it. Your Advisor Team can help you find next-level managers, both outside and within the business.
2. Trust Your Ambitious Junior Employees
Ambitious junior employees could give you a head start on developing an internal next-level management team.
Think of your ambitious junior employees as if they were high-potential minor leaguers in your business’s farm system. You can train them, groom them, and prepare them for taking on added responsibilities within your company’s established culture. This comes with the added bonus of not having to commit to what could be a costlier and more time-consuming effort to find next-level managers outside of the business.
Giving ambitious junior employees opportunities to grow into leadership positions can also help you foster loyalty to the company. This loyalty, with proper training, could turn into institutional knowledge that those junior employees can then spread to their junior employees.
Finally, nurturing the ambitions of junior employees can be a boon for company culture. When you exit your business, it will likely be a culture shock even with the best preparation. Having a group of long-time, loyal employees that you trained can help smooth any cultural turbulence that may occur as a result of your exit. Businesses with strong cultures tend to function better, and businesses that function well tend to be more attractive to deep-pocketed buyers.
3. Unlock the Potential of Your Middle Managers
Similar to nurturing the growth of ambitious junior employees, it’s crucial to determine what your middle managers are looking for in the context of your business exit.
For example, you may have middle managers who are quietly gunning for leadership positions and are biding their time. For these middle managers, you might consider a strategy that gives them more responsibilities and opportunities to prove that they are capable of a leadership position.
On the other hand, you may have strong middle managers who are excellent at what they do but who have no ambitions for leadership and simply want to stay where they are.
Determining which bucket your middle managers fall into can be a huge differentiator for your business and your Exit Planning.
Unlocking the potential of your middle managers is sometimes as easy as asking them what it is they’re looking for. By asking them directly but politely whether they’ve ever considered a leadership position, you can determine the best way to leverage their talents in the context of what motivates them.
For instance, you may have an employee who is outstanding at what she does, constantly delivers above expectations, and lives the cultural values that your company expects from employees. On the surface, this employee might seem like a perfect candidate for future leadership.
And when you approach that employee to ask if she’s ever considered a leadership position, you might find that she simply loves what she’s currently doing, wants to continue doing that for the rest of her career, and has no ambitions for leadership.
In this case, you can avoid overwhelming a strong employee with responsibilities they don’t want and, with help from your Advisor Team, create plans that will keep that employee happy and motivated.
On the other hand, if that same employee shares that she is interested in leadership, you and your Advisor Team might create incentive plans with ambitious but realistic goals that increase company value to achieve that allow that employee to show off her skills and reap the rewards if she truly is cut out for leadership.
Not All Risks Need to Be Mitigated
It’s tempting to commit to what has traditionally worked when you run a successful business. However, for many small and mid-sized business owners, what works now may not be enough to position business owners for financial security.
You probably noticed that each of the calculated risks we discussed involved you giving up control of your business in some way. This prospect is often challenging and scary for business owners to confront. But with an understanding of what your business needs to do to position you for financial security, a willingness to let employees succeed on their terms, and strong planning with the help of your Advisor Team, the calculated risks you take now could allow you to reap great benefits when it’s time for you to exit.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional.
About Altus Exit Strategies
David Jean is the Director of Altus Exit Strategies and a Principal at Albin, Randall & Bennett, where he is also the Practice Leader of the Succession Planning, Business Advisory, and Construction & Real Estate Services Teams. David works with business owners who want to improve their business’s value before they sell through the Seven-Step Exit Planning Preparation™ process. He has worked with companies from $5 million to $50 million in revenue across a range of industries.
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