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Succession Planning

As we start the New Year, succession planning is not usually on the top of ones’ mind, but should be an important consideration be it a short or longer term objective. The financial rewards for doing this right can be eye opening. For example, if you are doing $10 million in sales and growing 3% per year, with a 3% return on sales, your company might have a valuation multiple on your profit of approximately 3. If however you are able to grow at 12% and gradually increase your return on sales to 10%, which is achievable with the right game plan, your net worth (the cumulative profits you generated plus the value you obtained upon sale of your company could increase 4 fold during this period, or an increase of some $8 million for our sample company. If you let you company grow without a plan you may well find that you have both an unmanageable business, but one with limitations for succession planning, be that for future sale or being passed on within the family. Our industry is growing about 3-4 times the rate of the economy as a whole. This year there should be about 100 deals in the US, with about a quarter of that each in of the IT and HealthCare sectors; but succession planning takes a multi-tasking skill set to deal within a complex and ever changing world. The small to mid-sized staffing company is not always equipped to deal with all of these challenges.

So how can you accomplish this task? This would start by reviewing your company from top to bottom and come up with a game plan with the objective not to be just better than last year, but to build the value of your company and make it more marketable as you move forward and deal effective with risks and opportunities. Think of it like not only making your house more livable with modern conveniences for you now, but also having an eye on it increasing its market value for what a future buyer would want to buy and pay a premium price for; even if you have no plan to sell it in the near future. Succession planning process is not an event and improving things takes time. Here are just a few suggestions of getting your business house in order so you can maximize the value of your company. 

 

  • Do you know how you are doing relative to your specific market, by locale and by specialty
  • Do you set an example for your staff from ethics and dedication to working hard
  • Do you know how to take advantage of supply demand imbalances now and in the future
  • Are you positioning yourself to be a leader in your market so you will not only survive but prosper 
  • Are you concentrating on a quality core staffing specialty vs. of being a generalist taking all orders
  • Do you have a good record of growth in sales and profits; can this be sustained going forward
  • Are your accounting records sound enough to pass the scrutiny of an audit or due diligence
  • Are your margins good and growing, or have you reduced rates to maximize your profit
  • Do you have proper checks and balances in place to make sure you are in control of your business
  • Do  you have a stable staff, add quality people, eliminate marginal ones
  • Do you have a retention plan beyond annual compensation to retain your critical producers 
  • Do you hire and train your staff well, set standards and measure their productivity and efficiency
  • Do you have a win-win economic program with your clients as well as your staff 
  • Do you set standards for your team and provide them with feedback and constructive criticism
  • Do you have sufficient client diversity so if you lose a key client you will still be OK (under 15%)
  • Are you keeping up with modern technology in all aspects of your business
  • Are you looking at cutting costs per se, but the cost benefit relationship of what you are spending
  • Are you retaining your existing clients and regularly adding new ones
  • Are you asking your clients how you are doing and if they are satisfied with your services
  • Do you ask your client’s how you can service them better and be there first as their needs change
  • Are you assessing yourself vs. your competition and making improvements where needed
  • Are you separating constantly prospecting for new  business, with new top 10 target lists
  • Are you able to create value added services to de-commoditize your business  
  • Can you document to your clients that they are actually saving money by using you
  • Have you created a client relationship where you are a valued resource not just another vendor
  • Are you honest with yourself as to where improvements are needed and encourage innovation
  • Are there any hidden liabilities or important risk factors that need to be corrected 
  • Have you created a team that can function without you, so you have an asset to sell 
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