In our Succession Planning Starter Kit, we lay out all the steps to build a solid business transition plan in 210 days.
- Assessment – 90 days
- Execution – 90 days
- Communication – 30 days
Once we can get a business owner past the procrastination or constraints of time and inertia, the Assessment phase can flow fairly smoothly with an estimation of business value, a discussion about the owner’s post-transition plans and goals, and two potential options for future owners or successors. (We discuss why you should have a plan A and a plan B in the starter kit.)
The second phase, execution, is where many new gaps or “constraints” arise. These constraints can include the following:
- Wills need updating based upon new tax laws
- No non-compete agreements with some of your key management
- Disability policy is woefully inadequate based on the level of income needed
- Personal investment portfolio is performing below average (e.g. 1 percent rate of return when it needs to be at least 5 percent)
- Legal entity structure changes needed to pay less tax upon sale
- Unaddressed estate tax problem
Business owners can get lost in one of these constraints, impeding the transition planning process. Instead, the supply chain Theory of Constraints advises taking the critical path. This means starting with the constraint that will take the longest to sort out. We advise going through the entire business transition planning process first, and then you’ll be crystal clear about the largest constraint to achieving your goal.
Working with your CPA, attorney and other advisors, you can prioritize these constraints and take the critical path forward. As each constraint is “broken,” you move on to the next largest and most complex constraint. Before you know it, your priorities are ticked off and you are that much closer to achieving the net worth outcome from your business that you deserve.
Why leave your future to chance or someone else’s control? Supply chain management is a proven methodology for increasing throughput, reducing operational expenses and investment — thereby improving profits. In this competitive environment, you owe it to yourself and your key employees, maybe even to your country, to plan for a successful transition of your business. Identify your constraints, and if the main constraint is you, it’s time to get out of your own way and plan for success.
Gary Jackson, CPA, is a tax partner at Cornwell Jackson. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience at Cornwell Jackson and in providing tax planning to individuals and business leaders across North Texas.
Contact him at firstname.lastname@example.org.