Succession Planning For Business Owners
Famous Last Words
So many small business owners don’t give much more thought to the future of their business than ‘well, if the kids don’t want it, we’ll cross that bridge when we come to it’.
The problem is, unlike in the Roy Family (from the Succession TV series) the kids seldom want it, and by seldom, I mean never. The kids don’t want to work in a grey industrial park someplace, they want to work for a tech start-up in a funky coworking building in Central London that allows pets and has free yoga on Fridays.
Why Bother?
Without a clear plan for who will take over the business when the owner retires or passes away, there is a high risk of chaos, confusion, and potentially even the collapse of the entire enterprise. In this line of work, I unfortunately see many business owners fail to plan ahead, and lose out.
Succession planning is crucial for several reasons:
Ensuring Continuity: For your family, staff, customers and community.
Maximising Value: You deserve to gain from your years of hard work and risk.
Protecting Legacy: Outgoing owners can design the future of the business.
Reducing Uncertainty: Planning gives you peace of mind, and reduces uncertainty for employees and stakeholders.
‘I’ll Just Sell It!’
Well, that’s easier said than done.
Between 80% and 90% of businesses listed for sale, never sell.
That is a bleak statistic. Billions upon billions of pounds in unrealised value. There are myriad reasons why this is the case but whatever your circumstances, do not let this happen to you and your business.
So what happens to your business if you don’t plan ahead?
Well, the dirty and very unfortunate little secret is, if you aren’t proactive about the future of your business, one of four things will happen.
1) Wind it Down: You’ll sell your assets at pence on the pound, if you can sell them at all. You’ll open up tax liabilities for yourself. You’ll miss out on Entreprensuer’s Relief tax breaks. You’ll miss out on a capital gain for the last decades worth of blood, sweat and tears. You’ll need to pay all you creditors. Notify all your clients, your bank, your suppliers and so on. You’ll need to and sack your employees, and pay out their entitlements. It’s an administrative and emotional nightmare, and a costly one at that.
2) Sell Under Duress: One of life’s little curveballs will happen and you or your family will be forced to scramble to sell. Desperation and need are never strong footing from upon which to negotiate.
3) It Wont Sell: You’ll try to sell and no-one will bite, so you’re stuck with it. You’ll need to find a manger, or eventually be forced to revisit point number 1.
4) Employ a Manager: Ahh the elusive fantasy of the hands-off business. Maybe you will find the perfect person to take over the reigns, someone who can run the business as well as you, at an acceptable cost. Someone who you trust implicitly, who will work as hard as you, with your level of passion and your care for your customers and legacy. The reality however is that these people are unicorns. You’ve still got a lot of chips left on the table, and someone else is playing them for you. You must empower them, give them autonomy, you cannot micromanage them. Can you relinquish control? Can one ever really full relax under this context? I know I’d find it difficult, that’s for certain.
No Time Like The Present
Do it now, not later. We’ve all heard horror stories of a dutiful owner falling off their perch before their time, leaving the family with a major problem. Businesses in these circumstances always get snapped up for fractions of their true value. Families losing out on wealth that should have been theirs. The sharks they are a swimmin’.
Do it before you need to. You - or your family - will thank you for it later.
Cold & Calculated
Try and detach from your emotions. Outsiders aren’t emotionally attached to your business and are therefore by definition objective about it. Seek advice from third parties who will give you the straight dope.
Owners need to be realistic. Get good advice. Don’t take what business brokers say as gospel. Get unbiased opinions on what the business is truly worth. Business brokers are not objective. They have an agenda to secure your business as a listing, get their marketing fee (and often a retainer) and meet their targets. If your business is one of the 10% that actually sells then great, a fat commission too! They’ll tell you anything you want to hear to get your listing.
Get second, third and fourth opinions. I’ve lost count of the amount of times ridiculous valuations set by brokers have led to businesses not selling, gathering dust, and falling into administration over time. Be realistic. A bird in the hand!
Be very wary of business brokers!
OK, So What The Hell Do I Do?
Start Planning Now: Or better yet, yesterday. It's never too early to start thinking about succession. The sooner you start planning, the more time you have to prepare and make informed decisions.
Identify Potential Successors: Consider who among your employees, family members, or external parties (ahem, Compound Ventures!) might be suitable to take over the business. Once you have identified potential successors, provide them with the training and guidance they need to take the business forward.
Get Your Ducks in a Row: Update your documents. Ensure that your legal and financial documents, such as your will, trust documents, and business contracts, reflect your succession plans.
Communicate Your Plans: Uncertainty is dangerous. Keep your employees, family members, and other stakeholders informed about your succession plans. This can help to reduce rumours and ambiguity and help to facilitate a smooth transition.
Optimise Your Business: Build the value of your business so you maximise your exit. Invest in the staff, the systems, re-up the contracts. Have a look here to see what steps to take to ensure that you get the highest valuation possible.
Call Compound Ventures for a chat!
Succession planning can be a daunting and complex process, but it is an essential part of securing your family’s future. Take the time to think about your legacy and invest in a clear and comprehensive succession plan.
And lastly, always remember, that the businesses that make the world go around aren’t all that sexy, and if the kids ain’t interested, but Compound Ventures might be.
Book a call and let’s find out if we're a good fit for each other.
