4 Ways to Build the Mental Fortitude Needed to Transition From Your Business When it's time to walk away, you must figure out your options and prepare yourself for a big chance.
By Stacy Feiner Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Baby boomers are exiting their businesses at an unprecedented rate. In the next 10 years, approximately $13 trillion will pass hands as businesses transition from one generation of owners to the next.
The staggering exchange of wealth is a result of business owners acting on the big succession question: "What's next?" Those at the helm of family and closely-held businesses are rapidly determining how to transition their businesses.
Is selling the answer? Half of the 20 million family and closely-held businesses will face a decision on how to exit. And, of those who have sold, a whopping 75 percent report being unhappy about their decision a year after the sale. Why? Their plans for retirement fell flat. The buy-out agreement didn't pan out as planned. Valued employees were left without jobs. The legacy didn't continue as they hoped.
After a lifetime of operation, owners of middle market companies deserve to end as strong as they started. After all, the middle market employs 60 percent of the U.S. population, stabilizes our communities and fuels our economy. It is important for business owners to look back on the choices they made to transition their business and feel good. Looking forward, business owners should be poised to achieve and find meaning in whatever they decide to do next.
Related: Prepare for the Sale of a Business in 6 Steps
Here are four strategies that help business owners develop the mental fortitude necessary to make a strong transition:
1. Get into the mindset
Embrace that your most important role before transitioning the company to new leaders is to position the company for success for another 30 years.
Enhance the value of your company while you are still in the driver's seat. Get into the mindset that this process is a strategic one that requires a capital investment. It is not business as usual. Just as if you were to roll out new software system, launch a new product or build a new plant, you need to make a capital investment and add new resources. You must see that dollars you allocate to this process over the next 5 years will yield returns.
Without a comprehensive plan and a financial commitment to a formal transition plan, you will limp along, duplicate effort and dispirit your team. Set out to do this right.
Evolve as a leader and enhance your self-awareness. Get an executive coach to ensure you develop the mental fortitude to succeed during this complex juncture. All around the stakes are high, and you will feel the weight of responsibility to get the business in a ready state. You are preparing the company for someone else to lead and own, planning your own life for post-transition, and making a capital investment. Your coach will help you build the mental fortitude to stay focused, see things clearly, solve problems well and not become a problem yourself.
Think clearly. build conviction and accomplish what you say you want without undue complications.
2. Know your options
There are two basic directions for achieving a desired return on investment on your life's work: continuing your legacy or selling your business. Enhance the value of your business proactively before you exit to ensure that your desired ROI is a baked into whichever option you pursue.
Passing the business on to family or employees supports the goal of preserving the wealth engine for continued prosperity for your family, employees and the community. This stewardship parallels things such as land conservation and contributes fundamental economic viability. It requires developing the next generation of leaders and implementing a transition plan over a period of time to support family-ownership or employee-ownership models.
Selling a business to an external buyer focuses on executing a transaction at a point in time and supports the goal of obtaining the highest price and then stepping away. It requires preparing for the close scrutiny of due diligence and developing a strong marketing strategy to attract strategic or financial buyers.
And for those business owners who vow to die at their desk, dissolving the business is certainly an option. Without judgment, estate planners and insurance experts can utilize financial instruments that will minimize risk to your spouse and family.
Related: 5 Things Business Owners Should Keep in Mind With Succession Planning
3. Enhance value
As the business owner, you will want to set your successors up for success or you will want the buyer to pay a premium for your company. Either option requires that you introduce operational efficiencies and engage a more productive workforce. You will shoulder the responsibility for ensuring the successful execution of the value enhancement initiatives, but you don't have to go it alone.
Involve multiple stakeholders for a fresh perspective on the current state of your business and direction for the future. Form an expert team to build and drive the plan. Work with a strategy or management consultant (someone from the industry) who will look at efficiencies in the major categories of your business such as strategy, operations, talent, financials and accountability.
Get behind the plan in word and action. Systematically improve the systems and processes such as value proposition, market share, customer mix, competitors, cost analysis, controls, supply chain, logistics, products, profitability, pricing and potential.
4. Build bench strength
Know your talent as well as you know your numbers by implementing a sound talent management system.
Develop a working knowledge of your talent across the enterprise. Using principles for strategic talent management, establish the know-how, intelligence and processes to hire the right people, provide them the clarity of direction to be productive, and prepare for new roles as the company grows.
Create an environment for people to do their best work by using principles of employee engagement. The methodology increases value in a company by preparing the workforce to handle challenges inherent in a transaction.
Be transparent about your plans for company's future after you leave. Transparency of the vision will gain employee confidence as well as mitigate the risk of employees "bailing out." Often the future leader will have a bigger vision, more capital and an updated strategy that will stimulate growth and new opportunity in ways that benefit employees.
Owners of middle market companies deserve to end as strong as they started. They deserve to know what success looks like financially, as well as for their family, their business and their future.
Leave no stone unturned. The psychology of your decision should rest squarely in your hands.
Related: Before Hiring a Business Coach Make Certain Their Skills Match Your Goals
