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Planning for the Future – Ensuring Success in Succession

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The day-to-day issues of running, growing and driving a business can push planning for the future further down your to-do list.

But eventually, there comes a time when every business owner has to start thinking about how their business will look without them – whether that’s because they want to enjoy retirement, or because they want to take a step back and focus on other ventures.

A lot of the time, owners don’t think about succession until life pushes it up their agenda, either due to health or old age.

And as the old saying goes, failing to prepare means preparing to fail.

At the Development Bank of Wales, we know business owners are intelligent, hard-working and dedicated people, who appreciate the value of good forward planning.

While it can be odd or even scary to think about your business running without you – especially if you’ve invested time, energy and personal capital into it – it’s good to put those planning skills to good use, and thinking about how best to withdraw from your business before circumstances could leave you with no choice.

Because people tend not too think about succession until its too late, this puts them in a weaker position when it comes to controlling how it happens – and that, in turn, can lead to rushed or ill-considered decision making.

What is succession?

The transfer of ownership of a company to another person or team is known as business succession. There are various ways this can happen, from passing it on to a family member to selling it to a trade buyer or management team.

This lack of planning is identified as the most common factor for the failure of business post-succession.

But when owners get a grip on it early and plan ahead, this can make succession a lot smoother and easier for everyone involved.

Do you have a succession plan?

The first step is making sure your business has a clear and defined succession plan in place.

When thinking about succession, you need to ask the right questions and get the right people in place. Think about how long you expect the succession to take, what sort of value you want for the company, and if you want to make sure your business stays in local or family hands.

Work towards increasing the value of your business by supporting what’s best about it – whether that’s protecting any intellectual property rights, or preparing the right team and the right people to manage things as you take a step back from day-to-day running.

You should also look at preparing the business for sale – tackling any issues which might affect sale early on, and putting things in place to report management information and budgeting.

It’s also worth taking the time to look at the more formal stages, including seeking advice from corporate accountants, legal experts and tax planners.

With a plan in place, you won’t come under any undue pressure to accept weaker offers, and you’ll be able to evaluate any future options based on a strong understanding of your business’ value.

And you can look to the future without having to worry about what will happen to the business without you.

What are the different types of succession?

It’s worth thinking about the different routes to succession available to you. They each have their pluses and disadvantages – some might suit your business perfectly, while others might not be well-suited for what you have in mind.

Management buy-out (MBO)

A management buyout (MBO) allows an existing management team to buy all or part of a business. It can sometimes be the best exit strategy available, providing peace of mind and confidence for all parties

Better yet, employees, customers, suppliers and investors are more likely to be comfortable with the change in leadership, as they’re familiar with the management team and can be reassured by the continuity provided in them taking over.

Financing an MBO can be significant and can sometimes put off prospective new owners from taking over, but funding methods are available to help.

We have dedicated local teams and a strong track record of succession deals. Our finance covers the vast majority of the capital for MBOs, so only a small investment is required from the management team.

Management buy-in (MBI)

A management buy-in (MBI) brings in external managers, giving them either all of or a controlling stake in a business. While they won’t have the same level of knowledge as an internal team, they tend to be highly experienced professionals from within similar fields and can apply their sector knowledge to their newly-acquired company.

Buy-in management buyout (BIMBO)

A buy-in management buyout (BIMBO) combines both MBOs and MBIs, meaning a mix of internal and external managers buy the business and run it together, with the external managers joining the existing team after the purchase.

Employee buyout (EBO)

Meanwhile, an employee buyout (EBO) allows staff to take direct ownership of a company through share ownership, or indirectly via a trust – or a mix of both. It can be a great solution for owners looking to continue their legacy and ensure employees keep their jobs, while incentivising current employees to grow the company.

Welsh businesses looking at EBOs can contact the Cwmpas  – formerly known as the Wales Co-operative Centre – who have a range of resources and wide team of specialist advisers who can help manage the process.

If you’re an entrepreneur or management team looking to buy or sell a business in Wales, the Development Bank can help with loans and equity up to £10 million and follow-on funding.

We’d encourage any businesses looking at succession to head to our website to find out more.

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The Development Bank of Wales funds businesses that they think will benefit Wales and its people. The ones that will create ripples of growth- those that are more than a good business model or a great idea. They finance responsible businesses – those with a strong social, ethical and environmental standards, as well as real commercial promise.

By providing sustainable, effective finance where options have seemed limited, they bring ambitions to life and fuel possibilities for people, businesses and communities in Wales and beyond.

The Development Bank’s ‘big picture’ view means it can often help with debt and equity finance when options seem limited, doing whatever it takes to make a positive difference, bringing together the right people and working collaboratively to find a way to make things happen for Welsh businesses and for Wales.

Its teams are embedded in local communities, working out of regional offices that give customers direct access to key decision-makers and signposted avenues of support. They understand what’s happening in Wales’ villages, towns and cities – the challenges and the opportunities. They see the potential for business growth as a catalyst for enhancing lives and communities in Wales and beyond.

For more information, visit the Development Bank website at www.developmentbank.wales to find out more.

 

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