What is Succession Planning?
Most people go into business not only to earn an annual income but, more importantly, to ultimately extract the wealth created with a lump sum to fund their retirement or next venture. But many don’t think about how to exit their business until it’s nearly time to retire. Worse, many find they are forced to sell or leave their business suddenly due to illness, disability, debt, bankruptcy, legal disputes or divorce. You can’t just put up a ‘for sale’ price on your business and expect that someone will come along and pay you the price you want, and if you do just put an advertisement in the paper or online, don’t think that the price you get represents the true value of your business.
For many Brits the family home is their greatest asset. For business owners, the business may be the largest asset with the family home second. Yet many business owners will spend more time and effort preparing the family home for sale than their business. Most of us wouldn’t just do a quick tidy up two weeks before the auction of our home and hope for the best.Selling a business, just like starting a business, requires a strategic succession plan, whether you plan to sell to family, employees or complete strangers. Otherwise, you risk losing the long-term value of the investment that you have worked hard to create. Understanding the three key factors of Business Succession and Exit Planning is critical to developing a successful plan. The co-ordination and preparation of the three factors is what ultimately leads to a successful exit.
Most businesses are not exit or sale ready, they are owner dependent and often lack effective systems and processes, they are run like small business — even though they may be quite large.
Most baby boomer business owners are very strongly “attached” to their business — they identify with the business in what is called role-identity fusion. They need time and space to get comfortable about what the exit actually looks like and importantly what does life after the business mean.
The business, the owner/s and their finances are often complicated and interwoven and therefore hard to separate — The Exit Planning Institute estimates that up to 90% of an owner’s wealth is tied up in and linked to the business — this needs to be resolved before an exit can take place, and to ensure the owner and their family are adequately funded for retirement.
A strategic succession plan is a vision of the future, broken into the steps you need to take to achieve that vision. To maximise the value of your business on exit, you have to plan your exit long before it happens. This will allow you time for a smooth transition, but it will also give you much better security should anything unexpected happen to you, the other shareholders or your family members. Business Succession Planning is a holistic process to help you align your personal and financial goals with your business performance and value. We help you to identify the current position and value of your business, the price you need for your business sale to meet your personal objectives, and then develop a strategy to help you breach the gap.
The process from planning to exit may need five to ten years. Our aim is to have your business adequately prepared, and at peak performance to ensure you get the best return. If you are passing the business on to family members, we help you to put processes in place to make sure the business doesn’t crumble the minute you hang up your keys. We will explain to you that WHO buys your business is a key factor in the price that you achieve and help you to position your business so that you can attract the best buyer.
The most successful business succession plans are those that have been carefully and slowly considered over a period of time, are implemented gradually, constantly monitored and reviewed, have realistic strategic outcomes and “Begin with the end in mind”.