A value gap is the difference between what your business is worth today and what you need it to be worth to achieve your financial independence.
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"The future influences the present just as much as the past."
An effective succession plan required the analysis of the current and future situation, not only of the business but also the individual owners. To commence the analysis process, the following 10 issues are listed for your consideration as they will certainly affect your future.
A random selection of the ever increasing media articles concerning succession would suggest up to 70% of small, particularly family owned businesses in Australia will be looking to change ownership in the next 5 years. This is as a result of the “Baby Boomer” generation of business owners looking to retire in that period, all of whom will be seeking successors for their business ownership. Consider whether you fit into this category? Had you always considered that the sale of your business would fund your retirement? Have you identified a successor? Will this person come from within the business or will you be looking to sell on the open market? Do you know all of the exit options that are available to you?
“While you were working, your children grew up and moved out”. To ensure that this comical phrase doesn’t apply to you, the importance of a “Work Life Balance” is vital. It is also an issue that will become increasingly important to “Gen Y” employees seeking to lead both a fulfilling work and personal life. Do you know how to introduce a “Life Balance Charter” to your business? Are you leading by example in balancing your work and business life? Do you know your successors expectations of “Work Life Balance”?
A key concern that is sometimes overlooked when considering succession is the impact that the change in ownership will have on customers. Addressing the concerns of your customers is critical to ensure that they are confident with the new business owner/s. By going through detailed ‘Successor due diligence’ you can assure your customers that you have considered their interests and how they will be affected when your business is sold.
Much has been written about Generation Y and their different work and life values to “Baby Boomers” and even Generation X. Therefore, it is important to introduce a sense of value in employees to encourage them to grow the business, with the view of them emerging as potential successors. They desire incentives and rewards as performance encouragement. An effective way of addressing both rewards and succession is through the introduction of a Staff Incentive Scheme.
Do you regularly compare your business performance with that of competitors? Can you use this information to grow your business and provide a competitive advantage to potential successors? Will you also potentially be competing for successors in the same market? Are you at risk of disgruntled staff leaving and establishing their own business in competition if your succession plan is not handled properly?
A business that runs on systems and processes, therefore reducing owner reliance, is intrinsically more valuable than one that places a significant operational reliance on owners. Build a business that will allow a future successor to work “on the business” rather than “in the business” as an operation that is strategically focussed and systemised will be more attractive.
The ability to analyse and control cost structures will prove to be a valuable resource when preparing your business for sale. By analysing the cost of providing a service or producing a product enables you to identify underperforming goods or services. This will prompt owners to ask why this is occurring and enables them to make well informed decisions as to whether continuing to offer a particular product or service is worthwhile. A service based business can analyse unprofitable clients and either sell these or identify ways to improve their net contribution to the business.
How does your business currently measure the service you are currently providing customers? Have you ever undertaken a customer survey to report on feedback directly from the customers? This information can be used in performance reports, improvement programs, even benchmarking against competitors. These are only a number of highlighted issues that will affect your business in the future. If you can address the issues above you will ensure that the business is in the best state to implement a succession planning program.
Do you keep up to date with technological changes or improvements available to assist the way you do business? Is your business disadvantaged because of competitors being able to offer goods or services in either a more efficient or cost effective way as a result of them embracing new technologies?
Have you addressed all the items that drive the value of your business? These may not take considerable effort but may have a significant impact of the business sale price.
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