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June 2010
Succession Planning - Take a SWOT at your business
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 By Robert M. Nemeth, CPA/ABV, CVA, CDFA, CFE
Principal, Succession Planning Team Leader
A good succession plan incorporates opportunities to help your business grow. Whether you want to sell outright to management or to an outsider, or transfer the business to the next generation, one objective is the same – have the business prosper for years to come. Like it or not, the current owners are often tied to the future operating results of the company either through the future payoff of a note due from the new owner or simply the desire to see the next generation prosper. It’s rare that today’s business owner walks away from the business without any future financial or emotional entanglements, so actions that improve the future viability of the business are a critical part of any succession plan.
We have been following to story of JS Widget Company and their owners. Jim and Steve have been50/50 partners for over 25 years. Jim is 61 years old and Steve is 50. Jim would like to retire in the next five years, while Steve dreams of selling the business for a huge sum of cash. Both Jim and Steve have a strong desire for the business to flourish in the future. Running the day-to-day business for all these years has been time consuming. Getting orders out the door paid the bills and put food on the table. Jim and Steve never really took the time to take a step back and analyze where they wanted to take the business. Is it too late?
At Jim’s next meeting with his Succession Planner, he mentioned his thoughts to the planner. The Succession Planner explained that it was not too late.
The Succession Planner introduced the concept of a SWOT analysis. Jim heard something about a SWOT analysis years ago although he wasn’t clear on the details. “Besides, isn’t this something only larger companies did?” thought Jim. The Succession Planner explained that a SWOT analysis is a key component of any succession plan. The concept is really quite simple.
SWOT is shorthand for Strengths, Weaknesses, Opportunities and Threats. Strengths are internal resources or capabilities that allow the business to have a competitive advantage. Weaknesses are simply an absence of theses resources or capabilities. Opportunities are external factors which can help the business achieve its goals. Threats are external conditions that could harm the business. SWOT identification is historically done by key members of an organization during brain-storming sessions. SWOT identification is also done during the management interview portion of the business valuation.
The results can be eye-opening. Too many weaknesses and threats reduce the value of the business and make the future more risky. In contrast, significant strengths and opportunities can increase the value of a business if a plan is put in place to capitalize on them. Once the SWOTs are identified, the team develops a plan to capitalize on each strength, reduce each weakness, exploit each opportunity and defend against the external threats.
Jim and Steve decided to engage the succession planner to work with management and conduct a SWOT analysis. During the process, the management team identified many SWOTs such as:
Strength – loyal long-term customer relationships that would be retained when the business transitioned
Weakness – lack of depth on the management team, team members understand day to day operations but lack a long term vision
Opportunity - potential strategic alliances with larger manufacturers might open the door for OEM work to diversify the customer base
Threat – new technology being used by competitors and not by JS could signal price pressure in the future
Now that the SWOTS have been identified, Jim and Steve will work on developing a strategic plan to address these issues and to help JS Widget Company continue to prosper in the future – a necessity for any good succession plan.
Although simple in concept, the future value of your business and the ultimate success of you succession plan can be enhanced by implementing a SWOT analysis and follow-up strategic plan. For more information on SWOT analysis and how Apple Growth Partners can help, email me at rnemeth@applegrowth.com.
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