Business Succession Planning
Succession planning in this context is about clients looking to build businesses that can operate without their personal involvement. Once your business can operate without you then you can look at sale options and valuations.
If you are asking yourself whether to sell your company or pass it down through your family, we explore that here.
Imagine you are away from your business for 1 day, there will be no direct impact.
What about a week?
Or 2 months?
How about 6 months?
52% of UK businesses would fail if a key individual died or left (Legal & General State of the Nation’s SMEs Report). Therefore, these businesses are almost worthless because they do not exist without that individual(s).
What do we mean by business succession planning?
When you build a business with no key person risk, it is a more attractive acquisition for investors. This is the very essence of succession planning; through creating a business you can step away from you have created succession. Alternatively, you can keep it and enjoy the recurring dividends it pays you.
Clients will often engage with us because they are spending too much time working in their business, the idea of creating a succession plan or pursuing a sale is a distant dream. We help them step away from the daily activity and start spending time working on their business; this means focusing attention on activities that will increase future value.
For clients exposed to key person risk, the first step is often addressing the structure and functionality of their business – the subject is covered in more detail here (www.catandra.co.uk/functionality/). A functional business has the right people, with the right skills, doing the right jobs. In the case of your business this means analysing the entire operation and creating a structure that is not reliant on you.
How do you create a business succession plan?
When a client has time to step away from their business the succession plan begins to take shape; this plan can include:
- Training and developing the current team
- Recruiting new management
- Functionality project to align roles and responsibilities with business vision
- Management systems to help control business operations
For example, many owner managers still insist on signing off expenses and managing relationships with big clients. There are two immediate issues; signing off expenses is not a job for a director, there should be processes to manage it. If the directors hold all the key relationships then there is no client goodwill in the business, this means you will struggle to sell in the future because cashflow is uncertain.
Succession planning in a family business
Family businesses have a reputation for only surviving for 2 generations before the 3rd kills it off. This is often because the business is thrust upon the younger generation, or, they insist on taking over and see it as their right/inheritance.
The obvious problem is that they do not know how to run the business and the older family members generally have the knowledge.
Creating a succession plan for a family business is not too different from any other business, apart from the emotions and relationships involved. We apply the same technical principles but bring a more sympathetic approach.