Mentor A Successor To Increase Your Company's Value

March 2013       Download PDF      Print

Companies are usually founded by an owner with a business plan that outlines the company's strategic objectives and practical means of accomplishing them. Likewise, many owners retire from their businesses by following a succession plan, a written document outlining how the company's ownership should transition. However, owners often fail to integrate these two plans, which can have a negative impact on the value and future growth of a company. Selecting and mentoring a successor, and integrating that person's continual development into your business plan, is an important step in ensuring your company's long-term success.

Most business owners diligently prepare business and succession plans, but few consider the importance of making sure someone is adequately prepared to fill the ownership role once they leave the company.

If an owner sells his company, retires, falls ill, or passes away, the organization will need someone who is equally capable and qualified to become the leader or visionary. Often, owners are so involved in all aspects of their company's day-to-day operations, that in their absence, the business cannot run effectively.

If an owner hopes to one day sell his company, he must consider that businesses that rely too much on one key individual are less marketable to potential buyers. If the owner's presence is required to maintain success, then the value of the company would decrease significantly if the owner were removed from its operations. Therefore, many strategic and private equity buyers search for businesses with an experienced management team in place.

Identifying and mentoring an individual or team of individuals to eventually take over the ownership responsibilities of a company should be an integral part of a business plan. Ideally, an owner should select a successor early on and make a continual effort to teach that person the skills and knowledge needed to keep the business competitive and take it to higher levels of success.

Education and planning

Leading up to a transition of ownership, a successor should be trained on the daily responsibilities of the owner and given the opportunity to apply that knowledge under the supervision of the owner.

This process requires regular meetings involving the owner, successor, and key personnel to discuss current matters, growth and operations strategies, competitors' products and services, and industry growth trends. The successor should be involved in meetings with the company's key managers and trusted advisors, such as attorneys, accountants, and bankers. Having the successor review and assist in updating the company's business plan will also help him develop a better understanding of the company's long-term goals.