Succession Planning for Your Martial Arts School
New Focus on Business
When I asked how he felt was the best way to resolve this mindset Mr. Rudolph expressed his opinion that time would alleviate these issues as the older school owners plan for retirement. This generational shift, according to Mr. Rudolph, whereby ownership of martial arts school would transition to a modern group of talented instructors who understand the nuances of today’s business climate, is essential if the industry is to survive.
As a semi-retired Business Consultant and Financial Planner, I understand the necessity of getting ready for some form of retirement. When you have spent 3 or 4 decades of devotion to your career or business, there should be some form of reward in the way of easing up somewhat and maybe doing something different. Being a Certified Financial Planner, I always advise business owners that succession planning should be part of their overall financial plan, especially where your business is concerned.
While I will leave the creation of a detailed Martial Arts School Owner Retirement strategy to your Accountant, Financial Advisor or organizations like MAIA Elite, there are still a number of areas of your financial wherewithal that you need to concern yourself with. We will focus on the high-level succession plan strategies and what areas you need to start initiating as soon as possible and, in some cases, depending on your age and retirement plans, the sooner the better!
What is Succession Planning?
1. Retirement Plan
a. This plan covers your retirement wants and needs, and includes your post retirement activities, whether it be playing golf, traveling or even going back to school.
b .Deal with any Health-related matters and how best to managed any life decisions.
c .Develop a budget for not only your post retirement expenses, but any other activities, like traveling, you may wish to embark on.
2. Estate Plan
a. Includes your Will, which must be comprehensive these days.
b.Any Power of Attorneys
c. Any Trusts you may establish.
3. Succession Plan
a. Make decisions on how you will remove yourself from your business.
b. Should determine if Business to be transitioned to either a family member or someone else.
c. Should determine if a Trust is to be established.
d. How you are going to transition ownership of your business to the next generation.
1. Fair Market Value – Based on Comparative Sales
Valuation of a private business based on Fair Market is somewhat difficult if there are no comparative businesses to assess. Fortunately for most larger urban areas, the number of martial arts schools is substantial, at least to the point that some comparison analysis can be done.
2. Investment Value – Where an interested Investor sees value
When establishing an Investment Value, it depends on what the perceived value of the business is to a very interested investor, which is usually a family member when talking about a small business like a Martial Arts School.
While a family member may be the perfect person to sell your business to, nevertheless if you undersell or oversell the value of your business, you can almost assuredly expect scrutiny from the IRS (or CRA in Canada).
3. Liquidation Value – Where the Business is worth more in parts than as a whole
This type of valuation is more relevant to companies that maintain sizable financial (e.g.: Receivables) or mechanical assets (e.g.: manufacturing equipment). In the martial arts business, most of the tangible assets for a Martial Arts school is negligible in value. Even if your school has a fitness center profile, used exercise equipment loses its value considerably over a year or two.
The real value in an existing school is its Student (or Client) List and the related data that your school has obtained over the years. Even with the normal 20% loss of clients/students which is what happens in most cases with client/list purchases (e.g.: purchasing a Dental Practice), a martial arts school is probably better off being sold as a whole rather than its parts.
New owners of your business will need to see that any business investment they make will align with their personal core values. Most professionals in today’s unique business climate will try to get employed with corporations that allow them to fulfill not only their financial needs but their personal emotional needs as well. This has led to a more modern concept of financial planning which is being referred to as Behavioral Finance. This new financial planning strategy takes into consideration the emotional wellbeing of the individual in addition to their financial wherewithal.
For your Martial Arts school, especially if you are a traditional one, you must prepare not only yourself for a transition to a new generation of Martial Artists, but you must ensure that your business will be prepared as well. What this means is that the person or people who will be owning your school must perceive future value of the business so you must demonstrate that your business together with the industry itself has future potential for a long a lucrative career.
Why is Succession Planning important?
The primary purpose of succession planning is to first determine the value of your business, then try to preserve that value as well as its future growth potential and then to pass it forward intact. It also provides continuity to your efforts over the past few decades.
Nevertheless, the complexity of the various business entities (especially in the U.S.) and how they are taxed almost demands that you contact your Accountant and possibly your lawyer before you make any final decision on your succession or even your retirement plans.
One of the most important reasons to implement a succession plan is business stability. It provides a documented path to your future which can be reviewed and updated or modified depending on the progress of your school. While looking for someone to lead your school into the future can be a daunting task, you will find that once you have aligned your personal and business objectives, then even the sizable task of selecting a successor can seem manageable.
Another intangible of succession planning is leaving a legacy of both your martial arts accomplishments as well as your business successes. When thinking of your legacy, try not to focus too much on the traditional aspects of your martial art, other than the quality foundation it gave to the future leaders of your school.
Your true legacy is the viable career future you are providing any successor of your school. If this means updating your school’s business paradigm due to changing societal demands, then don’t inhibit your successor with traditions that will hinder any future success.
What to consider when choosing a successor
In my banking days, I would review a business loan request based on three main criteria, namely Industry, Management and Financial analysis. When trying to determine a successor of your martial arts business, you have to focus primarily on the management analysis. This simply means you are looking at the human element in your analysis seeing that the industry is still personality based to a large degree.
I recently purchased Cris Rodriguez’ excellent digital marketing book “The Best-Known Dojo: A Marketing Book for Martial Arts School Owners” which provides a wealth of details on how you really need to leverage all of the digital platforms in order to succeed in this new business environment. It demonstrates that there is a new breed of martial arts entrepreneur who are forward looking rather than simply doing what their “Sensei did and said”. Some of the aging school owners may not appreciate this requirement and feel they may lose the tradition handed down to them from their instructors.
As mentioned, if you are looking to leave a legacy, you must decide if your legacy requirement will inhibit the growth of the school going forward. The legacy you should leave is a well-run school with a new a modern instructor that ensure the success of the school for many more years. This simply means you need to do a considerable amount of work to ensure you select a new dynamic successor.
When I was working in the corporate world, there were many occasions where I would be working with an associate who was being groomed for senior management purposes. The Corporation would have this (always) bright individual do stints in various departments, with these assignments lasting anywhere from 6 months to a year or until they get a solid understanding of the position. When considering the number of departments in most corporations, this process could last many years before the individual was deemed ready for a senior management position.This simply means you need to put some serious considerations and thoughts in determining who is capable of taking over from you. There are three main criteria you should be leveraging when looking for in a successor, namely:
- Determine what you are looking for in a Leader
- Identify Skill Requirements
- Define Role Responsibilities
- Determine Future Vision of Business and Leadership
- Evaluate your Talent Pool
- Expand your potential pool of successors.oEnsure Candidates align with business objectives
- Prioritize what you need in a successor.
- Develop Leadership Curriculum
- Ensure each Candidate has a personalized development program.
- Determine if looking outside your business for succession purposes is an option.
- Leverage the Leadership “E’s” to properly align Candidates to Business Objectives.
- Make sure they have the “Experience” you need by slowly increasing their responsibilities in all areas of your business.
- Provide them with “Exposure” to all areas of your business and ensure appropriate mentorship to ensure candidates maintain discipline.
- Align Performance “Expectations” with corresponding compensation and promotions to ensure professional development.
- Embrace all form of Leadership “Education” to ensure your candidates are forward looking and able think differently instead of sticking to (possibly outdated) traditional methods.
The Leadership skills you need today are not the ones you need for future leadership requirements. Your business, as with society itself will change substantially over time. You must try to understand what the future will look like (known as FMO – Future Mode of Operations) when looking for a successor.
Once you have determined what you are looking for in a leader, ensured you have the correct talent pool and have developed your succession strategy, then you can start creating personalized development plans for each of your candidates.
When looking to keep and possibly groom certain people for future leadership potential, try not to determine how much it will cost you in compensation and benefits to retain quality candidates, but rather how much it could cost your business if you lose this potential successor.
Conclusion: Time for Generation Shift
When looking in the rear-view mirror of life, we tend to romanticize our upbringing and with respect to our martial arts training, how great our instructors were including what and how we were taught. The change in our business environment over the past decade or so forces us to remove our rose-colored glasses and be pragmatic in our outlook for the future of our industry.
If you have put so much effort into creating a successful school, you deserve to transition into some type of comfortable and affordable retirement. This means you need to initiate your succession planning early primarily so you can determine which is the best path to take when moving into retirement. In other words, be realistic as to what your best option is for your personal retirements needs. Whether this is leaving your business to a family member, which is a separate issue in itself, to a senior student/instructor or even if you sell your operation to a nation franchise chain, you need to make the best decision for both yourself and your school. In doing my research for this article, there wasn’t a single resource material that wasn’t at least 30 to 40 pages, which reflects the complexity and seriousness of any succession planning effort.
Nevertheless, one of the primary reasons for this article was due to the response of Mr. Jackson Rudolph, who, in an interview I had with him, answered my question on what he thought was the answer to resolving the animosity between traditional karate and sport karate.
“The answer is a generational shift in that over time it will get better”
Having been involved with Karate since the early 1970 ’s, I can honestly say I’ve seen the martial arts evolve over the many decades into something that is far different from what I was first taught. Not better, not worst, just different.
When I retired from the corporate world, I knew it was time for me to move on. Not only was it time to make a change in my life, it was also time to give an opportunity to a new generation of managers. Maybe the same could be said of a number of successful martial arts schools. If you have enjoyed a lifetime of being a martial arts entrepreneur, maybe it’s time to allow another generation to benefit from a career in the martial arts industry.
I may be dating myself, but quoting form an old 70 ’s TV series …. “You’ve done well Grasshopper; it is time for you to go” …. Just make sure all your plans are in order before you transition to the new life you have earned!