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Should Every Business Have a Succession Plan?

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As part of our ongoing series of weekly features, Business News Wales has asked it’s expert panel the question;

“Should Every Business Have a Succession Plan?”

For those unfamiliar, Succession planning is the process for identifying and developing new leaders who can replace old leaders when they leave the business.

Our panel’s thoughts can be found below, but if you would like to contribute to this feature, or any of our future features, please contact [email protected]

Barclays

Karen Thomas | Head of Corporate Banking

Despite being driven within the business world, there is a degree of apathy amongst some business owners with many yet to consider the future of their company when they retire. Succession planning is a tricky subject but one that is vital for both the owner of a business and their families. So many business owners have the financial security of their retirement tied up in their livelihood and it is essential that they plan early so they can determine the best route to release this security or devise a plan that ensures a worry-free retirement. Others may be considering passing their business onto their children or business partners. Again, early consideration is vital so their successor is prepared and agrees to the responsibility of undertaking the business. In all cases, there is a need to get expert advice so owners have a full overview of the factors affecting them – financial planning has a key role to play in that decision making process.

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Alistair WardellGrant Thornton

Alistair Wardell | Head of Restructuring South Region

We have hands on experience of working with businesses who unfortunately have hit crisis, following the death of a key director.  Personal emotions aside, this is a most unfortunate position for the company to find itself in and yet all too often this happens. The situation is exasperated when there is no succession plan in place leaving the organisation, the board, the employees and its stakeholders exposed to a great deal of risk. Whilst arising for different circumstances, similar threats occur, when a main director is looking to retire or exit the business and no serious thought or planning has been undertaken, to identify and develop the required talent to become the incoming successor. There are many different approaches to a succession plan and it is worth noting that family owned businesses face many unique issues, but whatever option you choose a succession plan is the only way to ensure an effective and smooth transition of your business and wealth.

Four key points to consider are:

  • Collect and analyse information to uncover your immediate and long-term objectives – will you be able to identify a successor from within your firm, is there the option to hand-down to existing management or will you look for a sale?
  • Assess strategic and wealth enhancement opportunities – consider opportunities to improve the value and reduce risk
  • Design, develop and implement your plan – the steps here will depend on the structure of your plan but are likely to be complex with specific timelines/deadlines. For example, if considering a management buy-out, is there sufficient strength within your current team or would you need time/resource to bring in external help to bolster the line-up?
  • Review & Monitor – as the business/personal circumstances change over time, your succession plan must change with them

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Development Bank of Wales

Steve Galvin | Senior Investment Executive

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

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).

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.

This submission is part of a larger article – ‘Five Key Steps to Creating a Successful Succession Plan

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Verde Corporate Finance

Craig Blackmore | Director  

Succession planning has evolved from the traditional thought of passing down the family business to the kids.  For many managers, this isn’t an option as their offspring choose different career paths.

The owner is then faced with the prospect of realising the value of a business they have devoted years to. Selling up could be an option, but some want to ensure they either leave a legacy or their team is looked after.

That’s where succession planning comes in. A prospective management buy-out is an attractive option, as the current owner knows the buyer, affording greater flexibility, and ensuring an amicable deal can be reached.

Effective succession does not happen overnight though.  A well-executed plan ensures the process is painless and a seamless transition occurs which provides clear vision for all sides.

The plan should evolve as a business strategy, incorporating the business structure, organisation, financials and operations to ensure the change of ownership has the greatest chance of success.

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Hugh James

Gerallt Jones | Partner and Head of Corporate and Commercial

Absolutely – and the earlier a business starts planning for succession the better.  The recession led to many business owners having to put succession on hold and this has caused a backlog of deals where owners wish to exit. In Wales, where the vast majority of companies are SMEs, this is a particular concern.  A lack of succession planning for SMEs can lead to the owner not achieving the expected return for the years of investment of time and money in growing the business – or even, in a worst case scenario, to the demise of a successful business.  So it is vital to have a succession plan in place, whether this involves passing the business on to a family member, a management buy-out or selling to an outside buyer. Early planning and engagement with professionals should result in the owner being well prepared for an exit at the maximum value possible.

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Business Doctors

Graham Morgan

For the very many ‘family businesses’ in Wales a robust succession plan is essential. This by nature has to be a several levels for maximum effect. When folks have worked hard over many years to establish a successful business creating a legacy around that personal achievement is important to so many individuals and their families that I meet. Planning for replacing key staff or indeed yourself takes a huge amount of thought and consideration and cannot be rushed.

Building succession requirements into your business strategic plan is, in my opinion the best way to fully capture the the importance of having a range of options in place. I quite often find business owners and their professional advisors narrow their focus on s specific solution rather than building a range of options and thus promoting both flexibility and competition for developing the right solution at a point in time.

Ultimately building you business to a position of strength so it is in the best possible shape is the key. A good analogy is when selling a property. If it has been maintained to a high level and is in excellent decorative splendour it is more commanding of interest and a better price that a property that clearly needs things done in the eyes of the would be purchaser. The same applies to a business! When it is in the best possible condition it is more appealing when it come to recruitment or finding a purchaser/investor.

Pivotal to building the best possible business is having a 3 year strategic plan that has been built with full input from the owners and senior management that tracks the journey the business is on and highlights timeline priorities to meet the ambition and aspirations of the owners. Through the Business Doctors portal we often find completion of our FREE Business Value Builder Report helps get the wheels in motion to have a full successions plan across the levels.

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Capital Law

Duncan Macintosh | Senior Partner

88% of the UK’s businesses are family run enterprises, and 40% of them, it is said, have expressed concerns about planning for their succession. But, planning for succession should be on every family business’ radar, particularly those with large workforces who rely on the business for their livelihood – as well as significant financial obligations.

If you’re a family business owner in Wales, my advice is:

  • Be proactive, and don’t simply wait for the issue to arrive
  • Engage sooner than later with the next generation in the business, and develop their skills as potential future owners and managers
  • Find a non-executive director who can help you help them develop these skills, encourage proper and positive thinking about the future, and support succession in a way that you – as the business owner – simply cannot. It’s a special skill, but it’s out there.

Burying your head in the sand about such an  important issue is never the best approach!

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Yolk Recruitment

Dale Williams | CEO

It’s every business owner’s worst nightmare to be left shocked and unprepared as a result of an unexpected departure of a key employee.

For most leaders, succession planning is the last thing on their minds and it is often something small businesses overlook. But the future is unpredictable, and the key to managing risks is to be proactive instead of reactive.

As an organisation expands, loses key employees or identifies skill gaps, succession planning ensures that they have a pool of talent to draw on, consisting of employees that have been cultivated to fill senior roles.

Mapping talent and developing pipelines of would-be leaders ensures there is a smooth transition when inevitable gaps emerge. Spotting high-potential team members early allows businesses to train them in all the skills they’ll need for advancement into key roles.

Businesses should give succession planning the time and attention it deserves and take the opportunity to plan well enough in advance to avoid the stress caused by nasty – yet often inevitable – surprises.

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UK Leisure Living

Gareth Jones | MD

All businesses need to have considered succession planning. We went through an unfortunate recent event, where a team member was diagnosed as terminally ill. We recruited from within a team member who was proven to be loyal and capable but just needed upskilling and an opportunity to shine. This was a successful succession plan. Business leaders need to be prepared for all eventualities if the worst was to happen. Its vitally important to have the right team who are flexible, to adapt to change.

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Risc IT Solutions

Jeremy Keane | MD

The Board at Risc IT Solutions always have one eye on succession planning throughout the business chain of responsibility. It is not just a consideration for the senior management roles you would expect to plan for when bearing in mind executive turnover or ownership continuity. Internal promotion, role or responsibility changes over periods of time require a clear set requirements for training and mentoring. In this way we bring stability and continuity within a loyal workforce who have clearly defined paths to improvement.

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Blake Morgan

James Williams | Partner

Succession is a vitally important consideration for business owners which can often be overlooked. Put simply, it’s never too early to start thinking about succession. Proper planning allows business owners to expand their options, maximise value and ensure a smooth transition. Being proactive with succession planning means that you are on the front foot; able to develop the right people and manage inevitable changes that occur when employees resign, retire or get sick. Importantly, it also means that you can focus on your own long-term personal and business goals by implementing a plan that meets your own specific objectives and achieves maximum value in the most tax efficient way.

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