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?
A business with no key person risk is a more attractive acquisition for investors; this is the very essence of succession planning. Creating a business you can step away from. Alternatively, you can keep it and enjoy the recurring dividends it pays you.
Clients are often spending too much time working in their business, the idea of creating a succession plan or pursuing a sale is a distant dream. I help them step away from the daily activity and start focusing on activities that will increase business 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: https://catandra.co.uk/key-person-risk-indicator/). A functional business has the right people, with the right skills, doing the right jobs.
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
One of the outcomes of this process is that the business is not heavily reliant on the leadership team, who in turn have more time to focus on more important activities.
Succession planning in a family business
Family businesses have a reputation for only surviving for 2 generations before the 3rd sees it fail. One cause we see if a common of ‘this is how the family business runs’.
Another challenge is that much of the business knowledge sits with the older family members and the younger generations are not coached to run a business.
Creating a succession plan for a family business is challenge because of the emotions and relationships involved. We apply the same technical principles but bring a more sympathetic approach.