Business owners often forget that their ownership won't last forever. In fact, PWC Global recent stats say 43% of family run businesses around the globe do not have a succession plan set in place. This may suggest why only 12% survive the business' third generation.
Succession planning allows for an efficient extension of the business' lifespan after the owner's retirement or death. The new prospects can be exciting for the business in developing a fresh mindset. For a smooth and equitable transition of interests the owner seeking succession should enlist professionals, such as Verde Corporate Finance, to craft best agreement and execution.
It is important to plan for succession. If issues are not confronted in advance, conflicts between family members or employees could occur. Staff may panic at the thought of uncertainty and may act to alienate parts of the business. The plan can prevent such events and create success within the direction of the company and the agreement terms.
Step 1: Long-Term Objectives
The plan may take a long time to facilitate and create which is why it is important to set one up early. With this, the succession strategy should reflect and move accordingly to the future. Evaluating your long-term objectives are a great way to decide timings of the succession.
Step 2: Choose Your Successor
The next step is to identify your successor or successors. The transfer could be between co-owners, heir, key employee, an outside party or multiple individuals. This may be an emotional process especially if family are involved. It is important to make an honest assessment of all potential successors in order to select the ultimate match.
This process could benefit from using interviews or testing if there are multiple successors to choose from. The slight competitive nature of these tests will hopefully highlight the best possible option. Before handover, it is essential to start to coach or train employees to ensure a smooth transition when you leave.
Step 3: Valuation and Exit Strategy
After successor selection, seeking planning advice from professionals would be the next step. A valuation of your business will also be an important early step as it can ensure you realise the true value of the business upon exit.
An exit strategy is also essential. This will give the owner a way to realise their capital valueand leave the business successfully and hopefully substantial reward for years of hard work. The absence of a divestiture plan may lessen the likeliness of an individual wanting to take over. It will enable the business to be handed over smoothly and efficiently.
Recently, Verde successfully aided Paramount Office Interiors with a buyout of management which allowed daily business happenings to continue largely uninterrupted.
Richard Jones, Paramount's managing director, said
“With Verde Corporate Finance everything was managed efficiently with clear communication… We would thoroughly recommend the team”.
Overall, it can be very hard for an owner to walk away from their company. To reduce possible detrimental effects, efficient advisors can plan the succession well to create a smooth transaction and maximise the perceived value of the business to the next generation.