The key to successful succession planning
Whether or not you like to think about it, it’s inevitable that one day you’ll leave your business. It may be that you decide to sell up and enjoy the fruits of your labour in retirement, or you have to exit the business due to health reasons. Whether today or far in the future, the time will come when you, as a business owner, have to answer: Who will continue to run my business?
The key to successful succession planning is to ensure you are not asking this question too late! Leaving it until you have reached an age where you are no longer healthy enough to work, or when the enthusiasm that drove your business to success has disappeared, will devalue your business.
You could decide, or need, to sell at any point in time – but it takes time to have the business in a state to maximise the sale value. The reality is that planning for the sale or succession of your business is one of the most important decisions you can consider, and that proper succession planning will deliver the optimum results for you, your employees and the new owner.
Succession planning has a time horizon for the next ten years and allows you to plan ahead all the necessary changes for an optimal handover. A succession plan answers two basic questions:
- Who will own the company in the future?
- Who will run the company in the future?
For many SMEs, the owner is heavily involved in the daily business, so essentially the owner and the managing director are the same person. A Succession Plan might split these two roles, with a potential scenario being that the owner first steps back from operations while remaining the owner, and a certain amount of time, transfers the ownership.
But first, the current owner has to answer some fundamental questions:
1. What is my target for the transition?
- Maximum upfront money
- Legacy for my family
- Protection of my brand name
- Shortest transition period
- Job security for my staff
- Monthly income for the retirement
2. How much do I want to be involved after the transition?
- A day or two per week
- Consult to the business for some years
- Bye, gone fishing
3. When do I want to step out?
- Next 3 to 5 years: Plenty of time to make the company really attractive, optimise the product portfolio, clean up structure, train internally or hire required key positions
- Next 2 to 3 years: Sleeves up, clean up fast, fix broken processes, prepare accounting
- Less than 2 years: Doable, but no time to waste. Some transition models might be already gone, avoid a simple fire sale
The answers to these questions will guide your timeframes and approach. It’s all about having choices. If you have a plan or strategy in place, then you can choose what you really want to do, at the time when you want to do it. And isn’t that what success is all about?
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