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It can make a huge difference to a company if a business owner or long-standing leader is willing to step down. The leader’s influence may cause employees to react differently and may result in a drop in business sales.
It doesn’t matter if the person is a C-suite executive, a long-serving manager, or the owner of the business, it’s important to have a solid plan before you hand over the reins. Below are 14 members of the Forbes Finance Council discussing the financial implications that businesses need to address when there is a significant leadership transition.
1. Replacing Departing Leaders from Within
It is important to prepare for the replacement of a leader in your organization and to have someone trained to do so. When we lose a key member of the team, it has been our best strategy to promote from within the company. We offer key man insurance to our partners in the event of an unfortunate circumstance involving a key contributor to business revenue. You can’t prepare for failure if you don’t plan! – Joseph Lustberg, Upwise Capital
2. Predict How The Change will Affect Employees
Your company must be able to anticipate the impact of this change on your employees. You must prioritize your top employees and create incentive plans to ensure that the value drivers of your business are satisfied with their roles during the leadership transition. Your business’ financial success can be affected if your key employees are unhappy during a transition. Brian Slipka and True North Equity Partners.
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3. Take into Account The Effect of The Owner on Cash Flow
It is important to consider the impact of the owner on cash flow forecasts. Are they able to generate new revenue from new clients? Are they able to run expenses that could be wiped out if the business is sold? Are they able to personally guarantee credit lines? – Meredith Moore, Artisan Financial Strategies LLC.
4. Make A Plan for Maintaining Internal and External Relationships
Many small companies reflect the leadership style and personality of their leaders. When a leader leaves, it is crucial to plan how you will maintain both internal and outside relationships. Unplanned transitions can lead to employee or customer churn which could have serious financial consequences. – Glenn Hopper, Sandline Global.
5. Develop Relationships with Key Accounts
Long-standing customers can be lost to new competitors. When a key leader leaves, it is important to maintain strong relationships with key accounts. These key leaders have probably been able to keep these customers over time and have been sought out by the competition. Many competitors see leaving leadership as a “land grab” opportunity. Do not underestimate the power and influence of relationships. – Drew Gurley, Redbird Advisors.
6. Create A Long-Term Financial Model
A leadership change can be difficult. However, a company that has efficient financial systems will facilitate a smooth transition. The leadership team is responsible for setting the foundations for financial reporting, accounting practices, and governance systems. A succession plan should include a financial model that can be used for three, five, and ten years. – Peter Goldstein, Exchange Listing LLC.
7. Consult with Advisors to Address Tax Implications
In many cases, the majority shareholder is the owner of the company. If this is not done carefully, it could lead to a tax disaster. This seemingly simple, but complicated transition should involve a team of advisors. These problems can be avoided and, in some cases, it could lead to the demise of the business. – Christopher Drake, Drake Consulting Group, LLC.
8. Calculate The Leader’s Intrinsic Value Correctly
Before a key leader or business owner is willing to leave, it is important to fully understand their intrinsic value before the transition can be completed. The impact of lower productivity across many channels can lead to significant unplanned expenses if the leader is not properly valued – Kacey Butcher, Adaptation Financial.
9. Add Up The Costs to Cover Everything That The Departing Leader Does
How much of the existing customer base and overall business development are the result of the work of the leader or owner? To foster and transfer relationships takes patience and delicate maneuvering. It is possible that you will need a team to replace the owner. Some may be needed for client management, while others can help with business development. You may find that the salaries and commissions of the new owner are more than what the existing leader is worth. – Aaron Spool, Eventus Advisory Group, LLC.
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