Ontario Forum: Succession Planning Means Understanding that Businesses Don’t Last

If you are building a business to last, think again: businesses don’t last.

That’s the message of Tom Dean, noted author and speaker on succession planning.

“We know that only30%of business will transfer to the second generation. Only 10% will transition to the third generation.

“Businesses don’t last.”

He said that in the face of books and business thinking to the contrary, his is not a popular message.

“It is often very difficult for owners to hear what I have to say, especially business owners who are successful. They feel that they are exempt from the laws of business. They are not.

“Most businesses will transition the business to the surviving spouse. Or to the kids that don’t really understand the business or, more importantly, have not  risked capital.”

A sound succession plan must always put maximizing wealth creation at the forefront.

There are, he says, four basic ways to transition a business.

–Sell to a family member or members

–Sell to a group of employees (a strategic purchaser)

–Sell to private equity (financial buyer)

–Go public.

Most companies will find only the first three are option, and many will not have the first option.

It is, he says, important ot picture what your last day would look like and to plan for it. Sucession planning should start the from the earliest possible time and involve critical, realistic thinking and actions to make the end goal happen.

Most business don’t plan for this eventuality, though. And he says that therein lies an opportunity for savvy business owners too.

“If you want to grow your business, you can do that by looking for family businesses that have left it too late, owners who are going to die at their desk, and who are going to destroy their value.

“You can pick up these businesses for pennies on the dollar and grow much better than you can do organically.”

But you should still be planning your exit. “Just because you are acquiring doesn’t you shouldn’t be exiting.

“The best time to look at exit planning is right now. A business, in my view, is an instrument of wealth creation. It is nothing less and it is nothing more.”

Business owners, he says, would be wise to stop thinking of their businesses as eternal and start thinking about them as being prepared for sale from the day they are incorporated.

“Businesses that do that are run very differently than ones ‘built to last.’ If you build a business to be sold, you are building a lean, money machine.”

And yet, he says, the real legacy of a business owner is not the wealth created by the business, it is the family.

“No matter how much money is passed along, eventually the family will use it up. The real legacy is passing on the love of business, the love of entrepreneurship and of risk. “