Tips on succession planning for your business

Succession planning involves transferring the management and control of a business to a new owner/s. This can be a difficult and, often emotional time but the earlier you start planning the better.

A strategically thought-out succession plan will set you on the right road from the get-go. Being clear as to your desired outcome will help to ensure a smooth transition for both sides.

The main exit routes for shareholders are:

• Transfer of the business to a family member

• Transfer of the business to a non-family member

• Sale (or management buy-out or Employee Ownership Trust)

• Bankruptcy/insolvency

5 key steps for succession planning

Although each individual business will have personal and bespoke needs, there are common measures which every succession plan should consider.

1. Don’t delay – Your succession plan should be put in place at least three years ahead of your planned exit date. Creating your plan can take a year or so and applying it even longer. Allow yourself long enough to iron out any unforeseen issues or challenges that may arise along the way.

2. Identify your potential successor(s) – Is there somebody you work with who knows the business well and is ready to step in and take over the reins? If you are considering selling, do you know who your potential purchasers might be? Equally importantly, do they know you? What are they looking for in an acquisition target? What can you do to make yourself more attractive?

3. Plan a realistic and achievable timetable – Be clear on your goals and objectives, keeping the lines of communication to your leadership teams open and concise. Ensure that any action points assigned are completed and nothing is left to the last minute. Working with professionals will help you understand the timetables involved. Don’t forget that you still have a business to run!

4. Communication – Be sure to keep key stakeholders, business partners, employees, and family members involved in the planning process early and often. It’s key to also remember at this stage that you keep communications open with your clients, contacts, and suppliers about the upcoming changes. Clearly, there are confidentiality issues to consider here, and you do not want to unsettle key stakeholders in your business. However, at the same time, reassuring them that you are planning ahead will be beneficial.

5. Efficient transition process – As you move toward your retirement or new venture, it’s important to focus on creating a strong financial future for yourself and move away from the day-to-day operations of the business. Is the second-tier management strong enough? Any gaps?

Forward planning and the ability to think in terms of what’s best for any business is key to success.

Fresh thinking

An example of an effective business model here is the family business.

Family businesses are generally passed on to younger successors. As a result, it’s important to note this will often bring with it a new spin such as acquiring new technology, digitalisation or expanding the business into other areas. For example, the latest research shows that the younger generation wants to operate in a more environmentally and socially responsible way.

Encourage younger family members to contribute fresh ideas to the business and involve them in key decision-making along with stakeholders. This is an important tool so that they can improve and develop their own voice.

Selling the business

Working with appropriate accounting, tax and legal experts during your planning will ensure that no important details get overlooked. Are your employment contracts all up to date? Insurance? Tax all up to date and no unexpected potential liabilities?

With everything in place and your succession plan drafted, it’s a good idea to consider the services of a business broker as well as the advice of other professionals, such as business and financial advisers, along the way. Given the current climate, it would be difficult to predict the timeline for selling a small business, it could take anywhere between two to five years as a rough guideline. 

Depending on which route you intend to go down, once ready, if you are considering selling (or an MBO or EOT) it’s a wise idea to consider the services of a Corporate Finance professional. In addition, the advice of other professionals, such as your accountants and financial advisers, goes a long way. They will be able to guide you through the process, help you present your business in the right way to the right parties, and manage both the process and expectations. It can be difficult to predict the timeline for selling a small business, but it could take anywhere between one to three years as a rough guideline. If deferred payments are part of the consideration, then that also needs to be factored into timescales. 

Our Corporate Finance team are experienced in advising SME business owners on succession planning and preparing their business for sale. If you’d like to explore any of the above in further detail, then please get in touch with our team on 01903 234094.