You are not in a unique position; most private businesses do not have an achievable succession plan in place. As is often the case when entering into a business, the focus is on setting up, operating and growing the business.
Nobody likes to think about it, but it is inevitable that one day you will leave your business. Whether you decide to sell up, retire or have to get out of business due to health reasons, it is important to plan for that day. A succession, or exit, plan outlines who will take over your business when you leave. Without one, you could be left with a business that you cannot sell or one that is unsuitable to hand over.
A good succession plan enables a smooth transition with less likelihood of disruption to business operations. By planning your exit well in advance you can maximise the value of your business, enable it to meet future needs and increase the likelihood that you can make a timely and graceful exit.
You need to create value for which others are willing to pay. This is often referred to as being “Investor Ready”.
Key factors in delivering your exit strategy are likely to include well developed business systems that manage your processes, workflow, and productivity; and help reduce people dependency, especially on you. Anything that you, as a business owner, can do to make the business less dependent on you through the transfer of key skills or relationships to someone else in the company is crucial in achieving a sale. Any buyer is going to want to know that they can handle the business themselves, without necessarily having specific industry experience. Anything that can be done by way of training employees or documenting procedures to allow a new owner to run the business successfully, is going to be of great value.
Often people in your position are reluctant to delegate authority to employees or to create and document business systems. If you maintain this level of control, even if you do have a number of employees, then from a potential buyer’s viewpoint, the goodwill is considered personal to you and a buyer will be reluctant to pay for it.
Clear goals and objectives need to be determined early on in the process and options considered. Options include when to exit and how this will be achieved. It could be by way of a trade sale, a merger, a management buy out, or bringing your sons or other family members onboard. However, never automatically assume that family will want to work in the business or have the skills necessary to run the business and keep it afloat.
Your succession plan should deal with issues such as:
• The process for choosing your successor;
• the personal development of your successor;
• the evolving leadership roles of you and your successor, including job descriptions for both at various stages during the process;
• communicating the succession decisions to your family, the business and to the community;
• considering future family participation in the business;
• organisational succession, covering evolution of top management and the board, career paths for key managers, business governance;
• identifying all the financial, tax, legal and contractual issues that could prevent or hamper your exit;
• retirement planning;
• tax planning;
• if applicable, is intellectual property preservable and transferable? and
• consideration of the business’s future prospects and will its value increase or decrease over the next few years?
Before embarking on the process of business succession, it is essential that you understand your motivations for the process and what you hope to get out of it. Without a clear vision of the intended outcome and the benefits of the process, it is unlikely that your objectives will be met.
Ask yourself the following questions:
• what do I want for myself?
• what do I want for my family?
• what does my family want?
• what do I want for my business?
• what do other key stakeholders in the business want?
By including in the goal setting process, the key stakeholders who are also affected by the succession plan, you will have a complete frame of reference for making good decisions.
Most businesses focus on one element of the succession planning process, such as tax planning and ignore other equally important issues or ignore the aspirations of key stakeholders, often leading to a poor outcome for all.
