It's never too soon to create a Succession Plan for your business! The longer you have to plan your exit strategy, the more value you can extract. Don't leave money on the table or be forced to work longer, start planning now!
A Succession Plan is about maximising the value of your business so you can achieve a better outcome when it's time to exit. It involves analysing the people within the business and deciding if you have a potential leader amongst them, someone who is able to take on a business critical role. You may also discover that there are others who are able and willing to take more senior positions - with the right training and support.
Many business owners don't think about a Succession Plan until they're ready to sell the business. However, it takes 3-5 years (minimum) to define and execute an effective Succession Plan.
If you're a small business owner, there's a high chance that you're working 24/7 (or at least it feels that way) and you don't have time to prioritise your exit plan if you're not looking to sell or walk away just yet. However, it's important you start planning now to ensure you leave a thriving business that won't stumble at the first hurdle once you've said goodbye. How disappointing would that be? Particularly if you're handing over to a family member or a close business partner?
It's important to remember that your leaving will create challenges for those remaining. Planning how this will be managed - particularly if growth and expansion are also on the horizon - will reassure everyone involved.
Start by clarifying your business and personal goals.
Establish what you want the business to deliver to you personally. Then, set business goals that will allow you to achieve your personal goals. This will help you plan for extracting the value you require to enjoy the lifestyle you wish to lead upon succession.
Your vision for the business.
Succession Planning forces you to clarify and discuss your vision for the business, which will play a huge part when transferring to new ownership. Vision ultimately enables a more effective working culture, helping to align and prepare your team for succession.
When your team understands the vision and how their key responsibilities and tasks contribute to the realisation of this, they become more engaged. This helps develop a more stable environment; one that's receptive to adopting new leadership and ownership.
To get your team on board also means finding the right successor given that many small businesses and its original founders are usually one and the same. We're not saying replace like with like but there is a gap to be filled and any successor should share the same vision and be able to consolidate business performance going into the future.
Avoid any sudden changes that could destabilise a transfer of ownership. The key here is to be proactive and not reactive. For example, if as a limited company, you want to split ownership amongst your children, think about getting a shareholder’s agreement in place in advance to avoid family fallout at a later date.
Succession planning for family businesses
According to the IFB (Institute for Family Business) there are more than 5 million businesses in the UK that are family owned, accounting for 50% of private sector employment. Back in 2018, a survey conducted by Legal & General (who interviewed 800 small businesses) discovered that only 42% had any form of succession planning in place which does beg the question - how likely is it that family-owned businesses will survive a transition going into a second generation?
As reported on smallbusiness.co.uk, Richard Kateley, head of intermediary development at Legal & General (now retired) commented:
"Family businesses have played an important role in Britain’s economy across the generations, but as these figures show, sadly many of them are ill-prepared for a critical event or even the transfer of ownership from one generation to the next."
Establish your business support network.
It’s important to take time out from running your business to work on developing it. Engaging your important business advisors will provide fresh and impartial perspectives at this potentially emotional time. Decision making requires a level head and independent advice to ensure you achieve your desired results.
Your solicitor may also be involved at the planning phase and will definitely be involved in drafting and signing the sale and purchase agreement, as well as when dealing with any post settlement matters.
Working with an accountant will be particularly helpful at the due diligence, valuation, and grooming stages. Our broad business knowledge and expert tax advice could help significantly increase the value of your business.
Utilising a mentor or coach will help you remain accountable to your leadership role, which will ultimately have the greatest influence on your succession strategy and outcome.
We can help you with accountability coaching. In fact, we want to help you groom your business for maximum value by increasing growth and profitability, improving efficiency and capacity, and managing risks.