Connecting Growth and Exit Success

When you’re at the helm of a successful business, one of the most important (and counterintuitive) questions to ask yourself is, “Who can run this business when I am ready to leave it?” Whether you plan to retire or die at your desk, the answer to this question may determine whether you can call your business ownership journey a success or a failure.  

Let’s look at why it’s so important to identify, train, and retain next-level managers and key employees long before you exit. 

If You Always Run It, You Can Never Leave It 

Generally, prospective buyers of your business will only pay top dollar for a business that runs well without the business owner at the helm. In other words, if your business is reliant on your presence for its success, it becomes exceedingly difficult for you to leave it and achieve financial security.   

In this scenario, perhaps the only way that you may be able to achieve financial security is by selling the company and then working for  the new owner until you were financially secure. Very few business owners prefer this possibility. 

In order to position yourself for a business exit on your terms, there are three important things that you need to begin doing:  

Ensuring Leadership Continuity 

When you’re working to ensure leadership continuity, there are several traits that you should look for:  

These traits are important regardless of whether you want to sell to a third-party buyer, a family member, or an insider. And often, the search for your successor begins by installing a next-level management team.  

Your next-level management team is a team of managers that allows the business to thrive even if you aren’t present. This is an extremely important element of business value because if the business can run well without you, it becomes more attractive to potential buyers.  

It’s possible that a member of your management team becomes your successor. It’s also possible that your next-level management team remains at the company after you sell it to a third-party buyer. Regardless, installing a next-level management team can help you position yourself to exit on your terms, ensure leadership continuity, and make your company as attractive as possible to buyers. 

Most importantly, a next-level management team can often provide the leadership necessary if you were ever unable to run the business. In the worst case, this management team can implement a business continuity plan if you were to die or become permanently incapacitated before your planned business exit. And on the more positive side, your next-level managers would have the skills to run the business after you leave it, which could position you to receive top dollar for selling your business. 

Identifying Key Employees  

In addition to next-level managers, it’s important to  identify, attract, and retain key employees. Key employees are people whose presence has a tangible positive effect on your business. The main difference between a next-level manager and a key employee is that a key employee may not have the skills or ambition to become a business owner. Nonetheless, key employees are so good at their jobs that losing them would tangibly harm your business.  

Because of their tangible effect on business performance, it’s important to entice these employees to stay with the business after you eventually leave it. This can be challenging if your key employees are loyal to you rather than the company. For instance, if you announce that you’ll be selling the company and key employees decide to leave when you leave, it could affect your business’s value to potential buyers. As such, it’s prudent to establish strategies and plans that will allow your company to retain your key employees even after you leave it.  

On Employee Loyalty 

Many business owners confront the challenges of manager and employee loyalty too late in their Exit Planning process. It bears repeating: Any buyer of your company will expect the company to run well after you sell it to them. In most cases, this means that your company will need its next-level managers and key employees to stay with the company after the transition.  

If your next-level managers and key employees have no motivation to stay after you’ve exited, it becomes challenging to sell your business and achieve financial security.  

Retaining Talent After You Exit 

Consider implementing strategies that “handcuff” your next-level managers and key employees. While the details of such strategies and plans will vary based on your business and its needs, there are several common elements of a good plan to retain next-level managers and key employees.  

Next-level managers and key employees tend to have different motivations for their high performance. In many cases, the motivation is more money. But they may also be motivated by things like the freedom to make their own choices, internal recognition, or even ownership. In other words, any incentive plan that handcuffs your employees should not be one size fits all. 

How can you determine what motivates next-level managers and key employees? In addition to asking them yourself, your Advisor Team can help you determine what may entice your company’s most important people to stay on after you leave. This can be especially effective if you have concerns that your employees and managers may skirt around the issue if you ask them the question yourself. 

After determining the motivations of the people you want to keep, it’s important to establish ambitious but achievable goals for them to reach to obtain any bonuses or perks that your plan offers. In short, better performances lead to better rewards, which can keep them motivated throughout the transition.  

Finally, your plan to retain next-level managers and key employees must ensure that they stay with the company even after you leave it. One common strategy is to use a vesting schedule that pays a full bonus over a set number of years after your exit, with the caveat of if an employee leaves before they’re vested, they forfeit the entire bonus.  

Continuity Is King 

A business owner leaving their business can be a catalyst for chaos without a plan. To best position yourself to avoid the chaos of your absence, you should consider creating a continuity plan for your next-level managers and key employees long before you need it.  

When a buyer considers purchasing your company, they are often purchasing the continuing good performance of the company after you leave it. Your next-level managers and key employees are the ones that will drive good performance after you leave. That’s why it’s so important to start identifying, training, and retaining these important people in your company right away. 

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.