Home Archives June 2006 Succession planning: Women face exit challenges

Succession planning: Women face exit challenges

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Thursday, June 01, 2006

By Gisel Hillner, KeyBank

They’re entrepreneurial, efficient, multitasking mavens who are shattering the glass ceiling by calling the shots in the workplace. They’re women who own their own businesses. Over the past 20 years, the growth of women-owned businesses has outpaced growth among businesses in general. Women-owned businesses are a boon for the economy, providing 19.1 million jobs and generating nearly $2.5 trillion in sales. Fastest growth is in construction, agribusiness, transportation and telecommunications. With this expansion of businesses, a growing number of women business owners are being confronted with the challenges associated with exiting the businesses they have built — in short, making sure that their “baby” is in good hands.

According to recent data from the Center for Women’s Business Research, a quarter of all women business owners do not have a succession plan in place, leaving their businesses vulnerable to potential acquisitions, disputes of ownership or business failure. The primary strategy of the remaining three-quarters of women business owners is to sell all or part of the business, according to the center. Just as women need to establish an effective business plan before they launch a business, they also need to implement a succession plan so the business runs smoothly after they’re gone.

PREPARING THE PLAN: Before designing a business succession plan, business owners should consider several factors, including: nature of the business, number of owners/ shareholders, age and health of owners, financial condition of owners, value of entity, prospects for purchase, state law.

When preparing a business succession plan, owners should think about what their personal goals would be if they weren’t involved in the day-to-day operations of a business, and what, if any, role they see themselves playing in the business.

Another important consideration for owners is the establishment of a living will, which states their wishes for end-of-life care should they become unable to make those decisions themselves. Owners should also have a potential successor in mind to operate the business should they become unable to do so. Above all, a succession plan should be documented, or written, ideally in tandem with an owner’s successor. A partner could agree to offer a right of first refusal when the owner exits, but if nothing is formalized and the owner’s family is making a decision in her place, the family may choose the highest bidder.

In addition, plans should include a company’s growth and expansion goals, as well as plans to introduce any new products.

WHEN TO START PLANNING: Business owners should start planning as early as possible. While they should certainly strive to make a long-term plan when they are still healthy and vital enough to actively participate in all business decisions, it is vital to plan for the unexpected.

What would they do if they (or their partner) suddenly became disabled or died? If their partner became unable to participate in the business, would they want their husband or child to fill that role? How would their family survive if they suddenly passed away and that family needed liquid assets to pay taxes and final expenses, not to mention ongoing cash flow?

Owners should also establish a reasonable timeline for transferring the business. According to the Small Business Administration, some succession consultants recommend a three- to five-year plan, while still others counsel owners to create a 10- 15-year plan. By allowing sufficient time for planning, business owners can evaluate potential successors in various roles, and determine whether these individuals have the commitment, maturity, and drive necessary to succeed.

Owners should consider the following when preparing the plan:

  • Can the business be transferred?
  • To whom should it be transferred?
  • When should it be transferred?
  • How should it be transferred?

Also keep in mind that various transfer options exist. The broad categories include: gift of business interest, sale to third party, sale to employee and sale to co-owner.

Business owners who establish a comprehensive succession plan and know their options will enjoy stronger financial security along with the priceless peace of mind that comes from taking care of business.

— Gisel Hillner, KeyBank
relationship manager, Portland
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