Should every business have a succession plan?


Stephen Galvin
Senior Investment Executive
Published:
succession

So you have a successful business, you’ve got good market coverage and a strong management team. You have a solid five-year strategy, your business is growing. But have you thought about what happens when you want to sell or retire?

It may seem a lifetime away but it’s never too early to start succession planning. Steve Galvin, is a Senior Investment Executive with the Development Bank of Wales. He explains: “In a perfect world you should have your exit strategy planned as early on as possible but the problem is many business owners are not thinking about this, they’re thinking about running the business and building value in the company. Succession planning often gets pushed to the back of the queue.”

“Here in Wales SMEs are king. Our economy is driven by dedicated owner-managers. More than half of business owners in Wales are over 50, with a significant number already over what has historically been perceived as ‘retirement age’. That means it’s possible that a lot of Welsh businesses may be looking to change hands in the next few years – with owners looking to pass the baton on to the next generation. If they don’t have a succession plan then it may be harder than they expected.”

For many owners in Wales that means they need to act soon. There are a number of options to consider. Do you pass your business on to a family member, sell to an outside buyer, or keep it local and sell it to your existing management team?

 “We’ve worked with a range of companies – from micro to medium – to help with them with their succession planning. There’s a growing appetite for management buy-out (MBO) and vendor initiated management buy-outs (VIMBOs),” added Steve.

“MBO deals are increasingly popular with both owner-managers and funders. We recommend the out-going owner stays on for at least six months as part of a phased handover as it helps the process go more smoothly.

“From the point of view of the seller, a disposal of the business to an MBO team should be easier to achieve. The vendor will be selling to a trusted management team, which they will have known for years.  This should be a friendly transaction between a willing seller and buyer.”

There are five key steps to creating a successful succession plan.

 

Step 1: Set a personal goal

  • What value do you want for the company? Be realistic in setting this goal.
  • What is the timescale for the transfer of ownership? Will it be phased?
  • Do you want to maintain family or local ownership?

 

Step 2: Maximise value

  • Protect any intellectual property you have. Highlight any wider value it may have e.g. alternative applications of a patent.
  • Have a diverse customer base.
  • Make sure you maintain and modernise equipment and facilities.

 

Step 3: Empower your team

  • Learn to step away from day to day running of the business
  • Tell your employees and management team about the plan.
  • Identify your core team and any potential successors.
  • Introduce your management team to key suppliers and customers.

 

Step 4: Prepare the business for sale

  • Identify any issues, which could affect a sale early on.
  • Have an effective way of reporting good management information.
  • Develop a track record for realistic budgeting.

 

Step 5: Plan the transition

  • Make sure you have a timeline for transition.
  • Include time for tax planning.
  • Seek advice from professionals, talk to corporate accountants and lawyers.