Effective succession planning requires careful planning, honest conversations with all stakeholders (including your business partners and family), and a willingness to take action well in advance of any succession event occurring.
Energy and resources are often focused on the immediate needs of the business, with little time devoted to strategically planning for a handover of the business.
Indeed, how many times have you uttered the words; “What happens next?” – That can often be the most difficult question to answer for a business owner.
For a lot of business owners, stepping out of the business may seem like a distant inevitability but the reality is that age, illness or changes in circumstance can catapult them into a sudden search for a options.
Serial entrepreneurs may have exit goals but no real strategy for achieving them.
It’s hard to talk about exits, particularly in a business where the owner’s identity is interwoven with that of the firm, so how do you start a conversation about a topic no-one wants to consider?
The topic absolutely needs to be addressed to ensure a smooth transfer of wealth and operations.
Succession Planning Triggers
The lack of conversation about exiting a business is particularly pertinent given the ageing population.
Many small business owners will have looked at their firms as retirement funds, investing profits back into their business with the hopes of a successful sale.
With an appropriate succession plan in place an owner can ensure the business is best setup for the sale.
- The Next Generation
The traditional option of handing over the business to family members is becoming less likely.
Next generations are increasingly reluctant to take on business ownership, particularly in third generation family firms.
Access to education and technology is shaping their future, opening opportunities that are a greater draw than the family business.
- Fatigue and Conflict
Running a business is tough.
Years of putting sweat, tears and equity into a business can take its toll on owners. Management teams and business owners may find themselves in continual conflict over strategy or implementation which can be detrimental to a business’ health.
A restructure to release owners from the business could be an option along with other potential strategies allowing maximum value without jeopardising the business.
- Business Competition
A more aggressive marketplace is increasing competition and demanding disruptive approaches to trade.
In this landscape safeguarding a client base and gaining competitive advantage by locking out competitors is important to generating a healthy and robust business.
Owners may look for a high investment exit strategy to build the business value for future acquisition.
- Sunset Industries
Technology has transformed the way we do business at every level and the impact can be felt in individual firms, industries and regions.
The fall-out can be severe, and business owners need to address this by identify future survival risk and implement a risk management strategy.
This may include a planned and timely exit from their business.
- Minimising Risk
Business owners know more than anyone the impact external influences can have on a business.
Whether there is new regulation, damaged brand reputation, illness in the family or a cashflow crisis, things that impact a business can be beyond the owner’s control.
The need to exit a business suddenly puts the owner in a vulnerable position at a time when they are least prepared to handle it.
A succession plan can help fortify the business to ensure a smooth and safe exit.
Business owners with an entrepreneurial spirit often look to take their skills to a new project.
How they transfer business ownership can be crucial to ensuring their legacy is retained in a successful business and allows them the financial capabilities to tackle the next big milestone.
- Return on Investment
Owners who have built up their business as a financial asset will want to extract maximum value from the organisation to gain a strong return on their investment.
A succession plan is a useful tool that positions the business in the market to attract the right buyer.
- Business Growth
The skills required to build a business may not be the capabilities needed to extend that same business into maturity and sustainable growth.
The question of how to continue leadership and management can be a difficult one for business owners, particularly founders.
As an organisation takes its place in the market, the business owner may not want to move on.
A succession plan can create a pathway to improving sustainable business performance.
- Maximising an Opportunity
A pioneering spirit is required in building a business. This is particularly evident when an emerging market or technological advance provides the forum for a business to seize or maximise the market opportunity.
To undertake this high-risk activity demands innovative thinking and a preparedness to shift business focus. It’s crucial to have strategies to protect the core business and manage cashflow and balance out the risk of advances.
Mapping an appropriate path to succession is important. Having the right Advisors and Advisory Board can help ensure the process is done smoothly.