With Team USA’s Olympic trials for Track and Field currently happening for the 2024 Paris Olympics, I am reminded about how fascinated I am with relay races, even though I haven’t run track since junior high. As a teenager, I spent many hours at track practice with a coach who was obsessed with the art of “passing the baton.” While other coaches pressed us to improve our speeds and cut our times, Mr. Cunningham focused on teaching us a single lesson: “I don’t care if you’re the fastest runner out there, just don’t mess up the handoff! If you do, you’re done. There are no second chances.” Maybe his words stuck with me because I wasn’t the fastest kid on the track; at least if I could do a great job at passing the baton to the next guy, we had a better chance at winning the race.
I watched that lesson in action during the 2016 Olympics when the US Men’s team—a team that had all but secured the bronze medal—was disqualified when Mike Rodgers passed the baton to his teammate before entering the changeover zone, fumbling the handoff. It was a fatal mistake. Worse yet, it was the same error that had cost them medal opportunities in the past. Here were some of the fastest runners in the world being disqualified for a mistake that had been drilled into me when I was just 14.
Don’t get me wrong. I don’t underestimate how difficult passing the baton really is, especially at speeds I couldn’t even have imagined running in the 8th grade! But I found myself retelling the story to a client the other day as we worked through the final steps of passing on his successful small business to his son. It’s been something we’ve been working on together ever since the day he asked me an important question: “I want to retire in 5 years… how can I make it happen?” Five years later, almost to the day, it is finally time for him to pass the baton to his son, and it’s my job to be absolutely certain we don’t mess up the handoff.
For business owners, retiring is much more complicated than simply giving notice to an employer and walking out the door into retirement. Passing the baton without fumbling is a whole lot harder than it looks. When the handoff fails, the result can be a business and financial mess that causes issues for both the buyer and the seller. And when the buyer and seller are in the same family, the repercussions can reach far beyond a failed business transaction.
The key to a successful succession plan is planning carefully and planning ahead. Doing so can help every business owner avoid these common mistakes when it comes time to pass the baton:
- Not preparing the next generation to receive the business.
Great business owners are often successful because they’re great at what they do, but teaching the next generation the leadership and professional skills they need to succeed takes time and commitment. I’ve seen owners push their kids to take over a business before they’re ready and watch the second generation get crushed under the weight.
The solution: Be intentional about actively mentoring the next generation to succeed, and be sure there’s a strong support team in place to cover every task and responsibility. Letting them walk in your shoes while you’re still by their side will make it much easier for everyone when you’re not there to offer help.
- Holding on to the business too long.
I’ve also seen the opposite thing take place. The business owner has a great next-gen team in place. Their leadership skills are honed, they “get” the business, but the owner simply can’t let go. What happens? The carefully groomed buyer gets impatient and moves on to a better opportunity where they can take the reins and succeed.
The solution: Set clear goals for the new team. Recognize when they are ready to lead, and then trust that it’s time to move on. You’ll head into retirement knowing the business, your trusted employees, and your loyal customers are all in good hands.
- Handing off too much debt.
One of the biggest retirement planning mistakes business owners make is reinvesting every dime into the business and not saving a nickel for retirement. When that happens, the only way to fund retirement is to squeeze everything possible out of the business. The result: the buyer is forced to take on a potentially lethal level of debt.
The solution: Make saving for retirement a priority as early as possible. If it’s already late in the game, work with your CERTIFIED FINANCIAL PLANNER™ to create a catch-up plan long before you’re ready to sell.
- Failing to set clear expectations.
I’ve seen it time and time again. Either the next generation wants (needs!) more help, but the seller (often Mom or Dad) is ready to call it quits, or the next generation is ready and able to take the helm, and the seller won’t give up the wheel. Whether the buyer is asking, “How can you leave me?” or “Why are you still here?” no one is happy.
The solution: Be clear about the transition timeline and document key milestones so everyone is on the same page. Include when the sale will take place, when key roles and responsibilities will be handed over, and when you will be 100% out the door.
Luckily for my client, he had a coach. The actions he’s taking today are the culmination of five years of careful attention to detail, including three years of preparing his son and the rest of his employees so he is able to pass on the business with nearly guaranteed success.
Whether you’re planning to sell or buy a business in the future, remember to plan carefully, plan ahead, and get the help you need to be sure you, too, are able to pass—or receive—that precious baton without a single fumble.
Joshua Gregory is a CERTIFIED FINANCIAL PLANNER™ at Korhorn Financial Group. He also holds his Chartered Financial Consultant (ChFC) and Certified Kingdom Advisor (CKA) designations and is a Dave Ramsey Certified Counselor.
