Advivo Managing Partner, Leon Stephan, outlines the considerations you must make when it comes to the timing of your succession plan.
Most small business owners make more (after allowance for their normal commercial wages for time spent working in the business) out of the sale of their business rather than operating the business. So, it only makes good sense to think that if one of your most valuable assets is your business, you should be thinking at all times (and I mean from before you even start the business) about ‘how do I maximise the values of my business and how do I exit?’.
Unfortunately, this is more often than not the case. If your over-arching strategy is from day one to maximise the value of your business, you will make different decisions than if you are purely focused on operational outcomes. I know you have heard the quote Steven Covey a thousand times by now: ‘Start with the end in mind’, but it is so true and imperative to solid strategic thinking.
Planning for the Expected and Unexpected
So, this means from the day we start the business, we have an initial exit plan in mind and are working towards that. This does not mean over time that the plan might not change, but the first step is considering that there must be an exit at some time. That exit could take many forms and is hopefully planned, not the result of an accident or illness. Hopefully, you are prepared and totally in control of the situation and hopefully, it takes the path you want, and you and your family are financially rewarded.
This means we probably need at least two plans: the planned exit strategy and the unplanned contingency plan for unexpected events, health issues or similar that might need to rely on insurance and inject additional funds and resources to keep the business going in case of emergency.
The planned path involves proactive thinking, planning for the future growth and needs of the business, your market, and other environmental issues such as litigation changes, and technology advances – it’s not much good having the best video recorder repair business in Brisbane now, is it?
Involve Your Team in Your Planning
Ensure to involve your team – they are a valuable part of the business and could even be the best exit plan in what is known as a management buyout. Whether your exit is going to come from the next generation or not, you just take the business to the market and sell it, or it becomes the biggest listing ever on the New York Stock Exchange, none of these will just happen – you need to plan for it!
That plan needs the support of your team, good systems and processes that go beyond the current people, efficiencies that generate business and do not absorb unnecessary human involvement. If the team is involved all on the same page, and culturally aligned your probability of success increases if not you could also face the prospect of sabotage as they may think their jobs are at risk.
Many businesses that I have valued or performed due diligence on have been severely limited in their value by what is called ‘personal goodwill’, which is too much reliance on the business founder. Plan yourself out of the business and slowly, as this will increase its value. Furthermore, complete a gap analysis on yourself and other key individuals on what skills and resources they possess, and the redundancy in their absence (note – this is also useful when considering the unplanned exit).
In summary, it is never too early to start planning for your exit, consider different scenarios such as changing circumstances and conditions, and actively involve your team to keep your plan current and the team informed.
Need tailored advice for your succession planning? Contact Advivo today.
