Many of the business owners I work with are brilliant at setting goals for the direction of the business and have a keen focus on the immediate future. However, prioritising your long term succession goals are also vital to ensure you get the best possible outcome.
Where do you start?
It’s never too early to start the planning and for the most part if you start considering your exit plan when you want to leave then you’ve left it too late. A solid exit plan will usually take between three to five years to implement so thinking ahead is key.
Your motivations and personal goals will form the basis of your succession plan. Do you want a clean break? Or are you happy to keep a foot in the business moving forwards?
Your succession plan isn’t set in stone. Your goals will shift and change and just as your business plan will adapt to these changes so will your succession plan. Regularly reviewing this means that it will remain fit for purpose.
Succession planning doesn’t always mean selling the business. The three most common routes to exit are:
Passing the business down to a family member
This is an attractive option for many founders who want to secure their legacy whilst also retaining wealth within the family. Passing the business down to a family member often means that the next leader will have grown up alongside the business and is aligned with its values.
Family succession also allows for consistency which ensures staff and customer retention as the business is handed over to trusted and familiar hands. However, this option means it is likely that you will keep a foot in the door as there is an additional balancing act that comes with intertwining family and business.
Negotiating a management buyout
This has a similar advantage to a family option of keeping key skills and knowledge within the business. For obvious reasons, having a strong management team in place is vital for this kind of exit strategy. You need to look at your existing team critically and understand where any gaps are, these will need to be plugged either through additional training or some key hires in the run up to your exit.
If you believe that your team aren’t ready to lead or that they don’t have the funds for a traditional management buyout then an Employee Ownership Trust can offer a good alternative here by allowing you to keep an executive role in the business while giving up your personal ownership in the controlling stakes.
Selling the business to a third party
Some owners are looking for a clean break from the business and this is best achieved through sale. If this is your chosen route you need to begin to form a clear timeframe in order to maximise business value.
Key areas to work on will be:
• Ensuring solid financial information is available
• Making your business as profitable as possible but also balancing investment levels
• Managing any current and future risks that may put off a buyer
• Keeping cash within the business – this can be achieved through proper tax planning.
Talk to us if you need advice on how to put your business in the best position for you to reach your exit ambitions.