Business Succession Planning
Business Succession Planning or Exit Planning is essential if you want to obtain a higher value for your business.
So, how do I undertake Business Succession Planning?
I am usually asked two questions when I met a potential client the first time:
What’s my business worth?
When is the best time to sell?
The answer to the first question is what someone will pay for it and to maximise the value, part of the process is to make it as attractive as possible to an acquirer.
The answer to the second question is an emotional one, since no business is ready to sell until you, the owner, are ready.
Are you ready to sell?
There are 10 questions on this web site. It is a simple quiz and the higher you score, then the more ready you are personally to sell the business.
Succession will happen whether it is winding up the business, passing onto managers, employees or a trade sale.
The choice is yours and whether you want to be in a position to determine your destiny. Do you decide or is it forced upon you or do you just pass away in harness leaving the business for others to run after your funeral.
What about the business?
So, let’s look at the other side of the coin – the business. When is it ready?
Ideally it is when the buyer can make an investment and it will grow and make more money for the buyer. Wouldn’t you buy such a business?
It may be a great business for you but is it a great business for the acquirer?
There is nothing wrong with a life-style business but a business built to be sold is going to be far more valuable.
In transactions I become involved with the question is whether you want to sell the business or whether you want to sell it for the best price. These are two fundamentally different questions.
Ideally the business needs to be independent from you, the owner.
Here is an example: A few years ago I was involved in selling a business whose turnover at the time was in excess of £1million. It was run by one person and was sold to a much larger corporate buyer. The owner was a very meticulous person; he had created a marketing pipeline and sales funnel providing him with a reliable basis to predict future sales and a customer base which could be cultivated by the acquirer.
One person businesses can be sold for a good price.
There are two areas to look at when looking at Business Succession Planning or creating an Exit Strategy:
Dependency on you making it easier to sell; and
The succession plan needs a strategy and the key areas to look at are:
Sustainability – if turnover is not growing, then this is not the end of the day but the business does need to have sustainable revenue and profits.
Scalability – can products or services be scaled up? Are they repeatable and teachable? Are they bespoke or repeatable without major changes for each customer?
Management team – Are the key employees tied into the business via Enterprise management Incentives (EMI) Schemes or Long Term Incentive Plans? Is there key man insurance?
Delegation of the operations – can the business operate in all areas of marketing, sales, distribution and finance without the owner’s day-to-day involvement?
Buildings – are the buildings in the business or separately owned? Are the leases properly in place with sufficient time to run?
Financials – How long does it take to produce management accounts? Hours or days – yes I am serious! How confident is the owner in the numbers? How much money is tie up in working capital? Is there excess cash in the business? How regularly are forecasts prepared?
Does the owner know who the potential buyer(s) might be?
Both revenue and profits need to be looked at.
Margins is likely to be the area to provide the most benefit; conversion rates from potential customer to debtor; average sale value; security of future profits and many more are the areas to examine, say one at a time.
My beliefs are that business owner’s work for long periods of time and they deserve to get something for their business when they decide the time is right to move on and they should receive the best deal.
I wish to look the owner in the eye knowing it was the best deal we could have done in the circumstances.
I would be happy to learn more about you and your business and I can be contacted on 07860 898452 or by email firstname.lastname@example.org