Is it time to think about succession planning?

Motivating clients to think about the ‘what-ifs’ is not easy. Our property and construction clients experience enough difficulties in coping with the day-to-day pressures of running the business, and balancing this with life at home.

Planning for succession can be an area which is often overlooked until it’s too late. Stuart Stead, head of property and construction at Cowgills, suggests some top tips to consider when considering exiting your business either through sale or succession.

1. Understand what it is that you are trying to achieve

It is crucial for any business owner to know what success looks like. Regularly assessing your financial requirements will enable you to understand how your business needs to look to be valuable enough to provide you with the income or capital you require for retirement.

2. Culture and people

Investing in good people will provide you with more options. If you’re looking to sell this will be attractive to a potential buyer. If you would prefer to sell to your management team they can be pre-prepared to take control.

When this is coupled with providing a clear understanding, across your company, of what your business is trying to achieve, and what it stands for it not only changes the culture and buy-in of your team, but the business results could be spectacular.

3. You may need to buy or sell first

To get the best price on exit it could be advisable to acquire a complementary business or dispose of a division which may not be attractive to an purchaser – it’s sometimes better for you to remove the negatives than to allow for a discount which a buyer might overestimate.

It is important to understand who could be interesting in buying your business and what they consider valuable or an attractive option. In knowing this, you can ensure your business is at its most saleable.

4. Timing is key

Sometimes the market is so hot that you can’t avoid being curious about exiting. But, ensuring your business is primed for this isn’t easy and there are many things that can be done along the way. It’s often worth having the preliminary discussions/ consideration before you’re ready and having time on your side is an important advantage.

Having full transparency of your financial performance is only one area. Getting the best price needs demonstration of your growth prospects and not just historical performance. Investment in your financial and operational systems can often drive a much better price, but in many cases these are the areas that businesses neglect in view of seeking sales or turnover.

5. Be careful what you wish for

Occasionally, business owners regret selling their business. Not because they didn’t get ‘enough’ money but because they felt they had sold to the wrong people. Looking after the employees is very high on the agenda of many exiting business owners.

Although the financial motivations are strong, selling a business can be a highly emotional transaction.

We have seen many occasions where a company has been sold to a lower bidder purely because they felt there would be a better fit with either the employees, the customers or the suppliers. This is the reason some business owners choose to sell to the management team, even knowing that they are probably not getng the highest price.

Finally

There’s no simple answer to succession or exit planning. The key is to be flexible and adapt to your situation. However, early planning is crucial as the dynamics change constantly and it is essential to be ready to react.

For further advice please contact Stuart directly: stuart.stead@cowgills.co.uk