What Gets Overlooked When Transferring Business Ownership?
There are a few obvious ways a business transition can fall apart: the numbers don’t quite work out, the new owner can’t pick up where the old one left off, processes deteriorate, clients disappear, etc.
Transitions are delicate times for businesses. But beyond the ‘nuts and bolts’ of ensuring the integrity of a deal, there are several key interpersonal factors — issues of culture, and issues of personal identity — that are often overlooked.
This was the key message of Rochelle Clarke’s session at this year’s #BossUp Conference. Clarke has served as a succession and business transition advisor and for close to two decades, she’s become adept at managing these overlooked but potentially detrimental interpersonal issues.
For example, at one point during her presentation she quizzed her audience: “Within 12 months of retirement, what percentage of baby boomers regretted leaving their company?” The answer was a whopping 75% — three in four according to the 2013 State of Owner Readiness Survey conducted by the Exit Planning Institute. This, she suggested, pointed to an obvious lack of preparedness on the part of the majority of departing business owners, not only from a practical perspective, but from a personal identity perspective. Preparation goes beyond just getting the business ready; it also involves ensuring that key individuals are also ready to transition.
She broke down a few additional figures: 50% of business leaders are 64 or older; 76% said they planned to transition in the next 10 years, but 83% had no written transition plan and 49% had no plan at all. Many outgoing leaders have their identities wrapped up in work — “Who were you when you used to be somebody?” she’s heard some retirees joke — and while some have organized their finances and transition plans, few have made deeper preparations.
This lack of preparedness can have profound effects on the business. “It can have a dramatic influence on employees you’re hoping to retain,” Clarke explained. So, after a major leadership transition stemming from a sale or succession, Clarke advises businesses to undergo values and vision realignment exercises. These help employees feel like they have a voice in crafting the future of the company. (See the resources section of the talk at the link below.)
There are two types of approaches for outgoing leaders to exit a business, Clarke said, but it’s up to the new owner to determine which is better suited to their situation:
- One-Step Exit: No real transition period, you sign on the dotted line and the old owner is no longer a part of the business. Clarke compared this to the arrangement in the Navy. When one captain hands over command of the ship to another, the old captain does not set foot on his old ship again.
- Two-Step Exit: The old owner remains a presence in an advisory capacity and slowly hands over control.
In either case “you need to tread lightly,” Clarke said. “If the owner has many loyalists among the staff, they will see how you’re treating that owner as a proxy for how you’ll treat them once they leave.” But there are downsides to each approach. An owner who remains, even in an advisory capacity, may influence personnel in ways that may not be in your favour. Similarly, a one-step transition may deprive you of an opportunity to smooth the transition in ways that empower your employees.
You can watch Clarke’s session in full here.
Opinions expressed here by contributors are their own.
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