As a woman entrepreneur, it doesn’t matter if you’re retiring or taking a year-long sabbatical, finding the right successor for your business is critical. That means making a plan to ensure a smooth transition and a healthy company under new leadership. It’s about more than ensuring the company’s long-term success. It’s also about making sure you’re well-prepared to move into the next phase of your life.
Women business owners already have a head start because, as a rule, they tend to consider long-term planning more often than their male counterparts. That said, the majority of entrepreneurs don’t plan adequately for their retirement or selling the business, greatly increasing the likelihood it’ll fail when they’re out of the picture. Preparing your business to thrive well after you hand over the reins involves planning ahead, and the earlier you start, the better off you’ll be.
Choosing a Short-Term or Temporary Successor
Women entrepreneurs leave their businesses for personal reasons at a higher rate than men — often to care for family members, have a baby, or further their education — according to research from Harvard Business Review. The group’s study found women business owners are 15% more likely to leave for personal reasons compared to their male counterparts.
Instead of exiting the business permanently, however, temporary leadership responsibilities can be assigned to a trusted key employee. The interim leader can manage day-to-day operations for up to several months, and it’s an opportunity to groom a permanent successor. The experience they gain during your absence is invaluable.
Knowing who will take over is only part of the equation. You also need to know when. Setting well-defined guidelines for handing off leadership responsibilities takes the guesswork out of which events trigger temporary leadership changes. For example, a sabbatical could activate the short-term succession plan or an illness that exceeds a predetermined amount of time. The plan also needs to clearly state each leader’s responsibilities, and what triggers relinquishing those duties to the long-term leader.
Women entrepreneurs are often in a better position to adapt to short-term succession situations. Because of the strong pushback, they can face from investors, women-owned companies often have much more robust business plans, according to research from Boston Consulting Group. That attention to detail and forward thinking helps keep the company running smoothly even during a temporary succession event.
Choosing a Permanent Successor
When you own the business, retiring or permanently leaving isn’t as simple as submitting a resignation letter. Who will take ownership and control needs to be set well in advance so there’s time to prepare for a smooth transition. Typically, that could involve transitioning the business to a family member, selling to a co-owner or employee, or selling to a third party. Regardless of who is taking over, deciding if the business should remain women-owned, and under women’s leadership, is an important decision.
You also need to consider if the new leader fits with your company’s vision and can foster the culture you want. For many women entrepreneurs, choosing a successor is about leaving a legacy, and not simply finding someone who can take over.
Succession From Inside
If the successor is within the business, or a family member, grooming them for their eventual role and responsibilities increases the likelihood the company will remain successful and run smoothly after the transition is complete. Including them in decision-making processes, as well as business planning, builds experience and confidence in running day-to-day along with long-term operations.
Planning for a successor from within the company doesn’t mean you have to choose that person today if you’re still several years away from retiring. In fact, it’s a great opportunity to start a mentoring program to help female and marginalized employees build the skills and experience to be future leaders in your business, and possibly your successor, too.
Selling to the Successor
Whether you’re selling out to a co-owner, an employee is buying the business, or a third party is making the purchase, they need to know what the company is worth. Working with a valuations expert is a smart move because they can offer a holistic overview of what your business is worth that goes beyond assets and revenue into the overall industry, the market, future opportunities, and more. Your certified public accountant (CPA) helps, too, by providing important context to financial reporting. All of that, the buyer raises funds or gets a loan to complete the purchase.
Including a lawyer in the process is critical, too. Regardless of who is taking over the business, there will be legal documents to guide the process as well as protect the business and everyone involved in the transition. This isn’t something to leave to online legal templates. Instead, it requires a professional to ensure the documents are correct and accurate.
CPAs and attorneys are important, but they aren’t the only players who can bring value to the process. Your leadership team is already helping craft the company’s vision and goals, and their insight is a key part of the business’s success. Including them in the planning process makes sense because they have a vested interest in ensuring the company’s long-term health. They’re also the people who keep operations running in your absence, any may be part of the leadership team after you retire, too.
Don’t Procrastinate
Business is going well, revenue is growing, and retirement is in the distant future. This is exactly when succession planning needs to be happening. Defining the end goal for your succession makes it easier to build a plan that fits with your long-term business vision. If you aren’t sure what the right path is for exiting your business, your business attorney and CPA may be able to offer some guidance, and the Small Business Administration offers some resources, too.
Taking a proactive approach to succession planning sets everyone on a path for a smooth transition, whether it’s a short-term leadership change or a permanent exit from the company. It also prepares the business to continue operating in the event of an unexpected death or serious illness — situations we don’t want to think about but need to consider for the well-being of the business and employees.
It’s never too early to start working on your succession plan. In fact, it should be part of the startup process. Starting when you’re ready to permanently step away, however, can be a recipe for disaster. As a general guide, a solid plan should be in a place far enough in advance so you can work with your successor and start transitioning responsibilities at least three years before you retire. Without a plan in place much earlier, however, the business won’t be prepared for an unexpected exit, and the remaining leadership team won’t have the resources — and possibly the authority — they need to keep the company running.
Time to Move On
As a woman entrepreneur, you run your business on your terms. When it’s time to exit, that should be on your terms, too. Investing the time and effort to craft a succession plan is an important part of ensuring your company’s success under your leadership and for those who follow in your footsteps, as well as your success and growth after moving on to the next part of your life.
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