Build Business Value Through Succession Planning

September 14, 2018 | The times keep a-changing Brian Crotty, Managing Director, HDH Advisors,

Business owners seldom seek to exit their businesses without attaining financial security. They understand that one requirement of financial security is to increase business value, but many struggle to achieve this goal. Fortunately for these owners, using new technologies and succession planning can work hand in hand to directly address their need to build business value or serve as an unexpected solution for owners who want to increase their businesses’ value, but don’t know how.

One of the pillars of succession planning is a timeline that plots the value-building actions that owners should consider to position themselves to exit their businesses on their chosen exit date. Following the creation of the timeline, the next step is to assess the strength of the company’s value drivers. That’s because value drivers often create sustainable, recurring, scalable and ever-increasing cash flow.

Some of the value drivers you may install in your business are:

  1. A stable, motivated management team that stays after you leave the business.
  2. Operating systems that improve the sustainability of cash flows.
  3. A solid, diversified customer base.
  4. Recurring and sustainable revenue resistant to commoditization.
  5. Good and improving cash flow.

In companies for which the priority is operational excellence (understood as quality and productivity of processes), the business value from information technology (IT), for example, will be measured in terms of key performance indicators at the process level. For example, IT will be seen as valuable if the systems helped to reduce the delay for processing an insurance claim or to ensure a no-error delivery of supplies to the production line.

A common mistake that business owners make when thinking about exit planning is that they focus more on “exit” than on “planning.” They worry if they commit to succession planning, then they will have to aim all of their energy at leaving their businesses, whether they want to or not. However, succession planning and using technology to grow value drivers goes far beyond the concept of leaving the business in that the process addresses various issues that can positively affect the business’s value, cash flow and overall operational performance.