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Preparing Your Business for an Internal Transition

Preparing Your Business for an Internal Transition

If you are preparing your company for an internal transition, you likely have a long list of issues to address. We encourage those who are Christian business owners to base their process on the premise that God owns it all (Psalm 24:1). If we truly believe this, there are three truths to consider:

  1. God cares more about your business than you do
  2. God thinks generationally
  3. God has already identified your successor (Luke 19:28-35)

What does this mean for you and your company? We teach that it means you should focus your efforts on preparing the place, defining the process, and developing the plan.

Step 1: Preparing the Place

We believe that the best way to prepare a place to receive your successor is to build a healthy organization.

Biblical wisdom can be applied to building a healthy business in the following four areas:

Legacy – Leaving a lasting impact (Matthew 5:16)

Wisdom – Applying knowledge to reduce the risk of uncertainty and increase the chance of success (Exodus 18:1-27)

Leadership – Helping others grow and perform (Deuteronomy 31:1-8)

Stewardship – Allocating limited resources to unlimited alternatives (1 Corinthians 4:2)

Step 2: Defining the Process

Establishing a process for the different parties involved in an internal transition can promote a more seamless execution.

For the successor, we teach that there are three progression principles:

Stage 1: Management

  • Evaluating candidate’s fit with the company’s culture
  • Assessing candidate’s qualifications

Stage 2: Leadership

  • Gauging leadership style
  • Weighing capacity to grow

Stage 3: Ownership

  • Determining preparation to be an owner
  • Evaluating demonstrated ownership mentality

For the owner, there are also three progression principles:

Stage 1: Owner/Leader

  • Setting strategic direction & casting vision
  • Making tactical decisions
  • Coaching managers
  • Providing accountability

Stage 2: Owner

  • Setting strategic direction
  • Mentoring leaders
  • Providing accountability

Stage 3: Governance

  • Providing accountability
  • Opening doors

Finally, there is also a progression principle for income:

As a best practice, we teach that income should be correlated to the work performed within the company. Accordingly, as owners reduce their time invested in the company, their income should be reduced. As new leaders increase their time invested in the company, their income should be increased.

Step 3: Developing the Plan

We recommend considering the following actions as you develop an internal succession plan:

  1. Identify the transition timeline.
  2. Design the optimal structure.
  • Consider the impact of things like cash up front, if the successor has a financial plan, the successor’s preparations during the progression timeline, seller financing, your personal financial plan, and how new structures might impact previous commitments.
  1. Develop financial forecasts.
  2. Prepare legal agreements (ex: employment, shareholder, and buy/sell agreements, as well as seller notes.
  3. Facilitate clear communication.

Would you like personalized guidance as you prepare your company for an internal transition? Ronald Blue Trust’s Business Consulting division leverages biblical wisdom and practical expertise to advise business owners as they seek to faithfully steward the companies with which they have been entrusted. To learn more, visit our website.

 

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