Managing your business through economic instability is an ongoing challenge. These past few years, marketplace disruptions, geopolitical forces, and fiscal volatility have tried and tested small businesses. But economic uncertainty doesn’t have to be a death sentence. Your business can survive and even thrive as you transfer to the next generation, but only if proper succession plans are in place.

Seek Operational Excellence

One of the most important succession planning strategies is to pursue operational excellence.

What do we mean by that?

Operational excellence is a philosophy that focuses on continuous improvement of business processes. The entire business benefits when:

• Operations are streamlined.
• Waste is reduced.
• The workforce is lean.
• Employee time is used efficiently.
• Business partners are well-vetted.
• Strategy is clear and focused.
• Leaders are committed.
• Workflow is controlled and purposeful.

When you’re performing each task the best that you can, external factors like rising materials prices, changing interest rates, tariffs, new tax laws, and changing regulations are more manageable.

Seeking operational excellence is a broad goal, which also makes it ambiguous. To help you better understand what we mean, let’s look at a few changes you could make to get you closer toward operational excellence.

Examples of Operational Excellence

• Empower employees: Provide your employees with the training and tools they need to make better decisions, and encourage them to look for ways to improve processes or protocols when they see problems. Stellar employees will make themselves known. Through this process, it will become clear which employees are best suited to take over the business or take on a leadership role.
• Enable automation: Automation technology is no longer something you can opt out of. Automation technology can be as simple as scheduling social media posts or automatically replying to email inquiries, or it could be as complex as sending invoices to clients or tracking and ordering inventory.
• Adopting sustainability initiatives: Is your business aligned with your values, and will those values be upheld when you’re no longer with the business? If you value sustainability, for example, you can build an environmental and social governance (ESG) policy and make business decisions that align with that vision.

The strategies you employ will be unique to your business. Choose strategies that align with your business goals and support your succession plan.

Improve Your Balance Sheet

Strengthening your balance sheet will do a few things.

• First, it will build or rebuild the health of your business, making you more resilient to changes in the economy as you navigate a transition of leadership.
• Second, it will signal that your business is robust, which can welcome stronger offerings and better borrowing rates.

But what do we mean when we say that you need to have a strong balance sheet?

A strong balance sheet should show investors and appraisers that your business is financially healthy. This might look like:

• High liquidity: Your liquid assets should be more than enough to meet your short-term obligations. Keep an eye on working capital metrics, like your current ratio (to ensure your business can cover current liabilities), inventory turnover ratio (to determine if inventory is going stale), or days receivable outstanding (to ensure you’re getting paid timely).
• Appropriate levels of debt: Debt isn’t a bad thing, but too much of it can signal to investors that your business can’t sustain itself. And because debt costs money, having too much of it can eat away at profits and make you less financially stable. Look at industry averages to determine an appropriate amount of debt for your line of work.
• No unused assets: Assets are a good thing, but only if you’re using them. Assets (like equipment, buildings, land, etc.) can cost you money in the form of insurance, maintenance costs, and — most importantly — opportunity costs. If you liquidate assets you don’t use, you can put that capital toward purchasing assets that add value, or toward business ventures that could help your business grow.

Be Critical of Key Stakeholders

A stakeholder is anyone who has a vested interest in your business, like its owners, investors, employees, business partners, bankers, suppliers, and customers. Look at your key stakeholders with a critical eye; it may be in your best interest to cut ties with some. Consider the following scenarios:

• Most of your customers are pleased with your services, but one of them never seems happy. If you’re serving them to the best of your ability, it may be best to cut them loose. This could free up space for a new customer who’s a better fit.
• You established a relationship with your bank years ago when your business was still growing. Now that you are more established, how has your bank shown they have faith in your business? If they aren’t offering the same or better rates than you could get elsewhere, why are you sticking with them?
• You’ve been working with the same supplier for years, but the last six months, they’ve been making mistakes. They send you the wrong items, or they take too long to fulfill an order. If your attempts to get them to improve their service have fallen on deaf ears, don’t be afraid to look for a new supplier.

Take Steps Toward the Future You Want

Your succession strategy will be much clearer if you employ the above three tactics. Not only will those goals ensure you get the highest valuation possible, but your operations will be set up for a smooth transition.

Reach out to us today to prepare your business for its valuation, an ownership transfer, or a transfer of leadership.