Dave Van Horn is the founder of PPR Capital Managementan investment fund specializing in mortgages and commercial real estate.
Most of us have heard the saying that people don’t plan to fail, they just fail to plan. In the investment world, you often hear this phrase in reference to financial and estate planning. Over the years, I’ve learned that it’s probably a saying that can apply to many parts of your business as well, including perhaps the most pivotal part —your exit. So, when is the best time to do succession planning? Hopefully, it’s before you actually need it.
Over the years, I’ve owned several businesses, but none have lasted as long, or have been as successful, as my current one. And it’s easy to see why: The less-successful ones all revolved around me. My work in the day to day of those businesses was necessary for the company to operate. Being a hard worker, I just assumed that’s what was necessary to be successful. On top of that, I really didn’t know that there was another way.
Now I didn’t come to this realization overnight; far from it. It wasn’t until many years into my current business that I started to take a step back and look at my overall career. Since it all really started as an accidental business (ie, not a franchise or even a company with a formal business plan in place at the outset), it’s easy to see how I got into this situation. Initially, I was an investor looking for passive income, and along with my two partners, we found a model that enabled us to acquire the investments that generate it. But pretty soon it grew into a business in and of itself. Fast forward about a decade later, and I realized I’m an investor who found himself a more-than-full-time job. Sure, a lucrative job, but a job still. Approaching a level of burnout working in the business, I decided to set the stage for my personal—and the company’s—next steps.
When it comes to succession planning, many business owners in a similar position to me are not much different than individuals who don’t want to face planning for their retirement or estate affairs. Thankfully due to my experience as an insurance agent early on in my career, where I was exposed to many different situations in people’s lives and careers where they planned and where they didn’t, I decided to be more proactive before it was too late. Of course, this is easier said than done.
It takes knowing who you are and what you truly want. After much discussion of this with various mentors and coaches, it became clear what I needed to do. My partners and I started by hiring a business coach with a lot of mergers and acquisitions (M&A) experience, and we created a plan for our entire C-suite. We not only looked at our current situation but did a gap analysis for the next three to five years, finally, coming up with a strategy to hire a new CEO and to form a board of directors.
First, we started with an in-house committee to hire an executive search firm recommended to us by key colleagues (including a former coach) who have been through this process themselves. Even taking this step forced us to do things internally to better sell the new position to our future leader—things like tightening up managerial and accounting systems, creating a pitch for our company and outlining all of our own personal timelines and expectations—all things that if I started over again, I would have focused on earlier in our company’s growth. Almost like selling a company for an exit, in this situation, you’re “selling” a company to someone you want to join the team.
Finally, after a lengthy search process, we found a candidate we felt was a good cultural fit and, just as importantly, someone we liked and respected. It also helped that our new CEO was someone who came from a company that was quite literally over 100 times the size of ours. I always said I wanted to pick someone who was more qualified than myself to take over the reins, and we were extremely lucky to find someone who happened to be local to our area and had more than met those qualifications. Then, all that was left to do was to plan the transition.
After a very brief trial period, during which our new CEO got acclimated to the organization, we made a series of announcements to our investors, partners and the general public, which were fortunately met with an overall positive response. Today, I’m happy to report that I’m the executive chairman of our board, have gotten some time and freedom back and have more confidence than ever in our organization moving into its next stage of success. We now have the benefit of not only new skills and experience from our new CEO but also a growing board of directors.
So now, I feel I must urge other owners who may be reading this, and I know we’re all busy, to be as proactive as you can in this arena. During the initial stages of this journey, I had reached out to our labor relations counsel for legal advice, and on this particular occasion, he was actually on his way to make an emergency trip to the deathbed of a business owner in his 80s. This CEO had no plan in place, making for a very complicated situation. So for you and everyone else’s sanity and peace of mind, please don’t fail to plan; plan to succeed.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?