According to the Conference Board, there is a 99% probability of recession within the next 12 months.[1] That expectation raises a question for owners who are thinking about (or are already working on) the transition of their companies to successors: Should you be planning a business transition during a recession? Should you forge ahead or hit the pause button?
Entrepreneurs, wealth creators and transition strategists are not pessimists by nature. Instead, we are nimble problem-solvers who, through a combination of hard work and creative thinking, create better futures for ourselves, our families, enterprises, and communities. We are also realists who have experience balancing risk and reward and if necessary, cutting our losses.
And yet, the question remains: Planning a Business Transition During a Recession on our plans to transition our businesses to successors? In this article, we look at the options.
What We Know About Planning a Business Transition During a Recession
Owners who want to transition their companies or enterprises to family members, business partners, or employees care about their successors. They’ve also been through tough times before so are confident in their ability to navigate rough waters again. It can be tempting for caring and confident leaders to remain at the helm because they don’t know if their successors can steer the ship and don’t want to see them fail.
The Financial Benefits
The confidence in own’s ability to lead and genuine care for a successor can be valid reasons to postpone a transition of an enterprise to a successor. Equally valid, however, is the recognition that tough times can be the best time to prepare for and execute a transition. With lower enterprise values come opportunities to:
- Minimize a transferor’s taxes,
- Minimize the negative impact on an enterprise’s cash flow, and
- Transition a greater percentage of equity to successors than when values are high.
The Experiential Benefits
In addition to the tax advantages of using the lowest defensible value for an enterprise, tough times provide the ideal growing environment for successors. We all learn more from our mistakes than our successes and successors are no exception. Successors can learn more from managing in tough times than is often possible in good times. Yes, successors will make mistakes. If they’ve got what it takes to be true leaders, however, they’ll figure out a way to pick themselves back up and move on.
Hitting the Pause Button on a Business Transition
If you decide that it’s best for you, your successor, and your company to postpone your transition, we suggest that you use the time to:
- Create a plan to teach your successor the skills you’ve used to grow a successful enterprise.
- Model the leadership qualities your successor will need once you step away: how to evaluate risk and tolerate uncertainty, spot opportunities, how and when to embrace new ideas, how to learn from mistakes and remain open to new challenges.
The Transition / Succession Planning Process
Preparing a successor to run an enterprise is an integral phase of a succession plan, a phase that is much like a dance. As the owner, you start with simple steps and move toward the more complicated steps / tasks. We’ve written about the dance of business successor development, a dance that takes time, effort, and patience on your part. Done right, putting your enterprise in the hands of a successor prepared to lead can be one of the most satisfying achievements of your professional career.
Pause or Move Forward: What Does Your Successor Think?
Before you choose to hit the pause button on your transition, ask yourself how that decision will affect your successor. Will they be relieved to have more time to learn to do what you do? Will they be frustrated by the delay? Will they assume that, by extending the transition timeline, you have no confidence in their ability to lead?
The best way to answer these questions is to talk candidly about your concerns about transitioning during a recession with your successor. Listen carefully to what your successor says before you make your decision because the transition journey isn’t yours alone. You have invited your successor to take it with you.
It’s Your Future: You Decide
When contemplating a business transition during good times, owners can their future at risk by allowing events to control them. When planning a business transition during a recession, we recommend that you consider management consultant and business visionary Peter Drucker’s advice: “The best way to predict your future is to create it.” By taking advantage of the opportunities hidden in tough times, you may be able to create and execute a business transition that builds the future you desire.
Elizabeth Ledoux is a co-author of the award-winning It’s A Journey: The MUST-HAVE Roadmap to Successful Succession Planning, as well as Accelerate Your Entrepreneurial Flight and Understanding the Growth of the Entrepreneur. She frequently speaks to organizations and business owners about challenges and opportunities in private and family business transitions, business and individual growth, and the business succession journey.
[1] https://www.conference-board.org/research/economy-strategy-finance-charts/CoW-Recession-Probability
