Succession planning is perhaps not the first thing you might think about when you start to consider selling your business. However, if you consider a succession plan and anticipate implementing it in good time before a sale, the whole sales process can often become much easier for both you and the buyer alike.
What is succession planning?
The CIPD (Chartered Institute of Personnel & Development) defines succession planning as “a process for identifying and developing potential future leaders or future managers”. This may include training and developing current employees, family members, or bringing in new talent from an external source.
In the case of a small business owner, or founder it may be better described as ‘managing yourself out of the business’.
Why consider succession planning if selling?
This is a good question to ask as succession planning will undoubtedly require time and energy to implement and in the case of many small and medium sized businesses (SME’s) especially, time is already tight. Plus, let’s face it, the energy and drive may just not be there if you are already thinking of getting out of the business.
Whether the business is selling a nuts and bolts product, or a less tangible service like a training programme you will want your sales ‘package’ to be the most appealing it can be to the potential customer.
Selling your business works on the same principle, to get the best price, the business itself has to be as appealing as possible to the potential business buyer.
Many SME’s have been developed by a single founder from nothing into a successful business. In such businesses the significant influence and presence the founder has on the day-to-day management of the business can prove to be highly problematic when the business comes to be sold. Potential purchasers will be put off by either having to take on the same responsibilities, or else being faced with the task of finding new approaches to management, or operations when there will already be much change going on.
Here at A2Z Business Brokers, we often hear our purchasing clients say ‘the business for sale is a very personal business, how will it survive without the owner?’ Some prospective purchasers will not take the risk on purchasing the business in such a case and others will offer a lower price to allow for the risk and difficulty perceived by the ‘personal’ element of the business.
However, if you have anticipated this problem by strategic succession planning, or perhaps more accurately managing yourself out of the business, then the business package is no longer as personal and consequently it is made more attractive to a wider group of potential buyers.
So how do you succession plan, or manage yourself out of the business?
Well the first step, according to the CIPD, is Talent Management. This may sound a little bit like the X Factor, but it isn’t really. Talent management is the process of attracting, identifying, developing, engaging, retaining and deploying individuals who are of particular value to your business. These ‘talents’ may be within the business at the moment, or you may have to actively search for them from outside of the business.
Before you get all Simon Cowell and manage your talent, you need to establish what it is you need the talent to do. This is not quite as obvious as it seems and requires a certain amount of honest introspection. So, from the outset, you have to identify the roles you play within the business, what skills you possess and the responsibilities you take on to drive the business forward. The honest introspection part comes in recognising the areas where you claim to delegate responsibility, but in fact still retain a hold of the reins.
Equally, you have to question whether your skills and responsibilities are transferable to another person and whether that person is likely to remain with the business when it is sold? Is there someone within the ranks who you can develop up to manage / control the business, or would it be feasible, or perhaps better, to recruit new blood?
A recent Department for Business, Innovation and Skills report suggests that businesses who have recruited externally for a CEO have fared better in recent years than those who have developed a CEO from within. Would this make your business more attractive to buyer?
Once you have identified, or recruited the ‘talent’ you now have to handover your skills. For the founder, or owner of a SME this may be the hardest part of the succession planning process as a lot of what you do to make your business a success is probably habitual – you just do it! Identifying and sharing that knowledge and experience will take time and a variety of other qualities such as trust, patience and ‘letting go’! It may also require new documentation and a change in the business processes overall as you may want to distribute responsibility to make the business less reliant on individuals and more robust as a result. All easier said than done.
However, from experience, we can tell you it will be worth it. With a senior manager who is not emotionally attached to both the business and / or the customers, your business becomes an independent package, maximising its value, reducing the risk of presenting potential purchasers with a ‘personal’ business to buy. This will make the business more attractive as a standalone opportunity to a greater number of potential business buyers and investors.
Download here the Infographic on Retirement & Succession Planning.
If you are considering selling your business and would like more detailed advice on succession planning and preparation for that sale, then please get in touch for a no obligation initial consultation.