In a recent blog post, A Solid Foundation is Key for Succession Planning Success, I discussed what I look for from business owners BEFORE they start the succession planning process. Business owners need to clearly identify personal and family values, along with the business mission, vision and values, which comprise the foundation on which we will build a succession plan.

In this post, I will discuss a portion of the first of seven phases that make up the 7 Steps to SuccessionSM process – The Cornerstones. The Cornerstone for both the Founder (G-1) and the Successor (G-2) are firmly placed in this phase. These stones, or blocks, in the McCabe Arch are individually set at a different time within this phase. Both need to be aligned in order to create a solid succession plan. The remainder of this post is dedicated to the Founder’s Cornerstone.

Founder’s Cornerstone

With the foundation laid, the first phase of the process on the G-1 side revolves around making sure the business is profitable now and has the potential to grow in the future. In other words “Is the company sustainable?”

In order to understand this, some of the questions I ask the Founder include:

  • Is there positive cash flow?
  • Is there recurring revenue year to year?
  • Is there a solid balance sheet?
  • Is there a business plan that has attainable goals?

This piece can be tricky since determining if a business can be transferred is a science. The founders need assistance from various trusted advisors to assemble historical data and then project future results.

A few items that need to be considered when determining if a business has room for growth include:

  • Size in terms of employees
  • Overhead expense
  • Customer base
  • Location of company and customers
  • Access to capital markets
  • Key executive dependency
  • Service and/or product lines
  • Litigation/regulatory risk
  • Volatility of the industry

Like I said, there is a science to ascertaining if a company is viable for transference. I went through this myself when passing on my own company years ago.

This assessment of sustainability allows trusted advisors into the succession process to help the Founder shape his cornerstone.

Who is a Trusted Advisor?

I have mentioned trusted advisors, but what type of advisors am I referring to? Here are a few that could or should be included in this first step of the succession planning process since they each bring a unique set of skills:

  • Certified Public Accountant
  • Banker
  • Insurance Agent
  • Corporate Attorney

One or more of these advisors may be asked to provide their expertise. If a business owner does not have a trusted advisor in one of these disciplines, I recommend an advisor that I know and trust to join us at the table.

During the analysis and appraisal of the company, we may find significant areas within the business that can be improved upon. A review of the organizational chart, operations and processes may identify gaps in the responsibility for Personnel/Human Resources, Sales & Marketing, IT or Finance. An advisor with skills in these areas should assist at this time and recommend solutions, if improvements can be made. These improvements may not be implemented before the positioning of the Founder’s cornerstone. However that may be addressed in future steps of the process.

My point here is that no company is perfect. But if the Founder has confidence that his company can be passed to the next generation, he should firmly place his stone. It represents his commitment to starting the succession planning process.

My next post will focus on the Successor’s cornerstone. I will discuss the challenges that Successors face as they commit to participating in the succession planning process. You will see that they are quite different from those of the Founder.

I provide balanced advice as I help business owners and their successors put a solid succession plan in place in case something unexpected happens to them or the business.

Contact me if you have any questions about this step of my 7 Steps to SuccessionSM process or to learn more about my business continuity services.