There comes a time for every business owner to think about who will take over the company reins in the future – often it’s a very emotional decision, considering the time and effort that has gone into building a business.
It pays to start this process well and truly in advance, but many business owners only start to think about succession planning when they are ready to exit the business, which can be fraught with risk.
Whether the decision is to pass the business on to someone in the family, or selling all or part of the business, having a well-thought out plan in place is key to setting up the process and making a future transition as smooth as possible.
No matter what you decide, there are a few important questions you need to consider, to achieve the right outcome for all key stakeholders involved. This includes:
- Do you wish to continue owning the business?
- Is the business dependent on one key person (‘key man risk’) and can this be managed?
- Is there sufficiently capable management to continue growing the business?
It’s best practice to consider the exit strategy well before the anticipated exit, allowing enough time to set up processes and procedures that can facilitate and sustain the change, without impacting too much on operations or the bottom line.
Some issues to bear in mind during this first stage include:
- Timing of the exit
- Current value – is it what you’d like it to be or are there improvements that can be made?
- Is it ‘set up’ for future growth, if not how are you going to get there?
- What are your expectations on sale?
- Are there any impediments to achieving these goals?
An independent advisor will be able to work through these questions with you and develop a plan to align your personal and business objectives, helping you to achieve the best possible outcomes.
The second stage involves the practical steps to sell your business or handing it down to the next generation – and a successful outcome in stage two is often largely dependent on the planning undertaken during stage one.
For family businesses it’s particularly important to invest time in determining what drives you and your family and building proactive, long-term plans around that – it will pay dividends later on.