Succession strategies - Part 1
Over the next 3 weeks, we’ll be looking at some of the things that you should be thinking about as you plan for the future of your business. This week:
Where do I start?
People who run their own business tend to treat it as much more than a vehicle for generating personal wealth and success. They care about the people who work in it, as well as the personality, culture and brand they have worked so hard to establish. They also care about what might happen to it after they are no longer at the helm. Aside from family, “my business” is often the most important thing in their life.
For these reasons and others, exit planning involves a bespoke set of emotional and practical issues for the owner manager. At a basic level, they can influence what kind of exit to pursue. For example, selling to people working in the business, who already live and breathe its culture, is a very different proposition to selling to a larger entity that plans to absorb the business (and embedded culture) into its own. I return to this subject matter later in the article.
Succession planning is an important element both of exit planning and ongoing business planning. It is, however, often overlooked, either because it forces us to face up to issues we would rather ignore or else just falls into the “too difficult” category.
Elements of Succession Planning
Succession planning should form part of ongoing business planning, irrespective of when you plan to sell. The ability of your business to adapt to losing critical personnel is a key part of its ability to survive and prosper.
When it comes to exiting, the owner manager needs to dovetail finding a new owner with operational succession – planning around their role in the business and who is going to take it over.
Operational succession issues often run deeper than the owner manager takes or finds the time to consider. Consider how valuable you are personally to the business that you own. Are you actually its most important asset? Are you its brand?
Any part of the value in your business that is attributable to you needs to be addressed as part of succession planning. If you don’t, you will be either selling the business for less than you thought it was worth or your buyer will expect you to stick around for so long as it takes to transition that value.
"As a result, an essential element of succession planning is starting to make yourself redundant or at least replaceable. Focus on reducing and ultimately eliminating your business’ reliance on you. Find and up skill your operational successor, either from within or outside the business."
Don’t under-estimate this task. A lot of people start their own business because they don’t want to be an employee. They want to be the boss. They want to be in control. Letting go of that control can be challenging. It will require letting go of decisions you are used to making yourself and giving your successor the freedom to follow their own path (and to make their own mistakes).
Next week in the second part of our series: looking at planning for the future of your business, we ask how you motivate your “heir apparent” and how you get ready for a sale.
Get in touch
For more information on succession strategies, please contact Principal, Paul Bevington.