Most CEOs have achieved some level of success in their business and finances, as well as their personal lives. Beyond that, many seek something more – a bigger meaning, purpose or legacy. Finding that significance is a very personal journey; however, most successful people discover that aligning all the components of their lives (personal finances, business success and family satisfaction) leads to a sense of liberation that includes financial freedom as well as peace of mind.
This is the second article in a five-part conversation about your journey from success to significance. We’ve already examined some of the barriers to achieving that greater meaning or legacy. Given the disincentives, is there justification for the effort of planning to achieve personal and financial goals while transitioning out of the business?
CEOs, as successful business leaders, tend to focus on the potential return on investment when deciding which course to pursue. Examined through the lens of ROI, a planned and well-executed transition is indisputably superior to the alternative.
Transition on your terms or someone else’s
When external pressures drive business transition, the resulting process is stressful for everyone. Owners frequently fail to achieve their personal and financial goals when the change is unplanned; a forced timeline typically leaves the business undervalued and involves rushed transactions that bring unnecessarily burdensome tax consequences. The CEO also has far less control of the process when urgency is driving change, with fewer options and little or no ability to maintain confidentiality.
These are worst-case scenarios, it’s true; failure to complete exit planning does not always lead to disaster. However, these negative consequences are real risks of delaying or avoiding succession planning. Whatever the nature of the outside pressures that force the CEO’s hand, the exit will be less graceful and more traumatic than a planned transition. With decisions driven by exhaustion, fear or necessity rather than well-reasoned strategy and preference, it’s all too common to see a lifetime of work disintegrate or be significantly undervalued in a sale.
Benefits of early and effective transition planning
Now consider what happens when the CEO does plan ahead for an eventual succession – bearing in mind that planning for such an event carries no implication of current desire to retire. In fact, the optimal time to begin formulating a succession plan is many years prior to your intended exit, or even when you first step into an ownership role.
Effective transition planning is a multi-year process that brings tremendous value to any point of the business life cycle. Working on a transition plan naturally shifts your focus to creating maximum value in the business in all economic environments. This value-creation mindset not only increases the financial benefit to you in a future transition scenario, ensuring you can achieve your personal and financial goals, but also maximizes cashflow and positions the business to grow and thrive over the long term.
With a plan in place, you control how and when you exit, the terms of any liquidity events and your continued involvement in the business. A well-defined strategy and adequate lead time also let you plan ahead to minimize, defer or eliminate the resulting capital gains, estate and income taxes.
Articulating your life plan before the exit date allows you to fulfill lifetime business goals and retain control by generating a number of strategic exit options from which to choose. You can share your vision with everyone in your circle and implement the changes you want to see – on your own schedule, with time to coach, train, encourage and observe the results.
Communicating your plan also gives you the opportunity to get family, advisors and management team on the same page so everyone can work together, using a consistent approach to facilitate your goals. It reduces stress on you, your family and your employees and helps to ensure the continuity of the business.
The ROI of a well-executed transition plan includes maximum financial benefit along with a lifetime of fulfillment. Viewed in this light, it’s clear that early and effective exit planning is sound business strategy. Reach out to the experienced business advisors at RKL to discuss further or get started.