By Jessica Salerno-Shumaker, OSCPA senior content manager
When undergoing the process of succession planning, timing is key.
“Time is your friend,” said Mike Pappas, CPA, director at Barnes Wendling. “The more time you have to plan, the better the result will be. And if you don't have enough time, then there's not as much you can do.”
Pappas said the ideal time to begin the succession planning process is 10 years before the business is looking to make the transition, although he has clients come to him with a variety of timelines in mind.
He recommends doing a business evaluation first to reveal high and poor performing areas. If given enough time, he’s able to work with clients to improve the underperforming areas while also involving the leadership team in creating a plan to put the business in the best position possible.
However, many entrepreneurs are proud of the business they’ve built and can be reluctant to admit there are areas that need improvement.
“Beauty is in the eye of the beholder,” Pappas said. “That's where having a good independent assessment of the business will help point out the areas that the seller thinks are okay, but actually are not.”
It’s essential to have that independent assessment, he said, because that can create the roadmap to success for the business. And whether there is a decade of time to work with or only a few years, that information will be helpful in focusing on what’s most important and where to make the effort to improve the business.
Years ago, Pappas said a client wanted to sell their business and received several offers. During the due diligence process, a prospective buyer who had submitted the highest bid reduced their offer based on some of the findings. Instead of selling, the owner decided to work on their business over the next decade and was eventually able to sell for six times that initial offer.
“As long as you're dedicated to it, it will work and work well,” Pappas said. “But if you don't spend the time, you're not going to get the results.”