Business Brokers

Succession Planning


Succession planning is a large and wide ranging subject, so to narrow it down a bit this page is mainly aimed at small and medium sized, family, or privately owned, businesses.

For the sake of expediency we will define a small, or medium sized business (SME) in line with the European definition (see * below).

Silver Back GorillaWith respect to this definition, it is fair to say that a £40 million turnover business is a decent sized one and will be substantially more sophisticated than a £4 million one.  However, for businesses in this size range, still in private hands, the issues surrounding succession planning can be remarkably similar. While in some respects the larger businesses typically have more choice available to them, they also have more restrictions in others.

The term ‘succession planning’ often conjures up an image of intransigent old men surrounded by young turks eager to take the reins as soon as they can get the ‘old man’ out of the way. It’s a view popularised in literature and film alike and is perhaps an understandable product of our human social organisation. In its most simplistic representation you need look no further than the great apes to understand what is really under our skin. Images of the silver back gorilla fighting off young males to maintain control of his harem within the troop are familiar to most, as are images of the ultimate denouement as the old silver back’s power wanes with age and he is finally deposed.

This is not an anthropology lesson, but if we are to begin by taking lessons from the behaviour of gorillas, then perhaps the principal lesson might be that retirement, or withdrawal from leadership, should be made in a timely manner – before it is absolutely necessary. This means that the change is controlled, managed and, because it is not forced, it can be done in a way that is to the best advantage of the retiree.

‘Timely’, ‘controlled’ and ‘managed’ all mean planning in advance. Planning does not necessarily mean setting an absolute retirement date, however it does mean ensuring the ducks are in a row to shoot when the time is right.

Defining The Plan

In many ways the issue of succession planning is a bit like a business sale in that there will ultimately be a change in business ownership and, in making that change, the present owner has to be extracted from the business in a way that causes the least damage possible, in as smooth a fashion as possible.

Where it differs is that, with succession planning, a business sale to an external party is just one option of a number and all of the other options entail complexities beyond the obvious fiscal and legal ones. These additional options contain traps that stem from our humanity –  the ties that bind, and the emotional spaghetti that comes with family, friendship and the complex loyalties that often underpin long term servants of the business.

Making rational and dispassionate sense out of a family business especially, can often lead to the owners feeling a sense of what the Americans often refer to as ‘overwhelm’ – which is a sense that it is all just too much and too difficult to deal with right now. As with so many things on the too difficult pile, the whole subject often gets shelved until the ‘time is right’. The problem is, of course, that the time is never right and it can be easy to defer decisions continually until they ‘have’ to be made – at which time it is often too late.

So when is the right time to plan? Well there is no time like the present. Retirement (or withdrawal) may be many years in the future as far as you are concerned, but the proverbial bus always lurks around the corner and you could go under it at absolutely any time. It therefore makes sense to plan for retirement as soon as the business reaches a stage where the absence of the owner is likely to create problems for a number of people. Key triggers will be if the business operates any sort of long term service that clients rely upon and/or the appointment of one, or more employees.  Fairly early on in the business development in other words.

Step 1 – Codify the Business

If you take nothing else from this article then take this piece of advice at least: ‘as early as possible start to run the business as if you will sell it tomorrow’. This simple mantra covers so many bases. Following it forces you to implement so many good practices within the business from sales, to delivery, to administration. Implemented in spirit as well as just operations, taking such an approach will not just make the business stronger operationally and financially, it also pretty much deals with a good 80% of any succession plan.

Running the business as if you will sell it tomorrow forces you to think about how every aspect of the business will, or could, operate without you there. Think about this enough and you will soon start to discover operational options that allow the business to continue to thrive and earn money on its own.  This not only substantially defines the succession plan, it also can be a key to a freedom in your life you never thought possible. Freedom to explore new business opportunities, or even just have more personal time.

Typically this approach means organisation, proceduralisation and a clearer definition, of roles and responsibilities. It may also mean increased security and in many cases more defined and restrictive contracts of employment.

One of, if not ‘the’, great fears of owner managers is having the business stolen out from under them: ‘give the employees too much information, too much control and you run the risk they will steal your client list and go off and do what your business does – but faster, better and cheaper’. It is this argument that is the one most used against the ‘proceduralisation of the business’ recommendation and so it is worth dealing with as the next step, before moving on.

Step 2  – Secure Core Business Information

FortressTo begin with, the fear that the business will be stolen out from under you is not paranoia. Mostly it is based on past experience, or war stories heard from other business people from their past lives, or previous businesses. It is a legitimate and well founded concern and it happens all of the time. Sometimes the owner has this fear because that is how they set their own business up in the first place. To deal with this risk we have to put moral questions to one side and recognise that, although most employees will be honest trustworthy and diligent, a notable percentage will not be. Unfortunately, the untrustworthy employees look a lot like the trustworthy ones and so we have to treat all the same.

The best place to begin the preventive measures is at the beginning, at the point of employment – namely at the employment contract. Tip #1: have a one. Tip #2: make sure it comprehensively details the employee’s responsibilities, the standards of behaviour expected of them and that everything they produce as an employee of the company is the property of the company. In particular, make sure there is a well structured non-competition clause that prevents an employee setting up a business in competition for at least 12 months after leaving employment. You might also add (for good measure) that infringement of these clauses will be pursued in the courts without exception.

It is fair to say that only so much of employment contracts can be truly enforced as both practical and financial constrictions can get in the way. However, such clauses can make the opportunists think more than twice about taking the chance and it can be enough to stop most.

Perhaps more importantly, the second preventive measure is operational security. Here we need to look at methods that prevent the vital information from being stolen. Ask any IT security expert and they will tell you one of the biggest security risks is not some hacker, or virus, but the people ‘inside’ the business – the employees themselves. Often this is not malicious, it is just careless, but either way open doors can be walked through by criminals, or employees with malicious intent, alike.

A common error is keeping important operational data on spreadsheets or, low security Microsoft Access databases. The primary reason for such an approach is usually cost, but it can also be a lack of clarity on specification. However, if cost is the reason, it is a false economy when it carries so much risk of data loss and prevents the business being proceduralised to a point where it is more robust, more saleable and more readily picked up by potential successors.

None of this stuff is easy, especially if it is being done retrospectively. It will take time and so, like the rest of the plan, if it needs doing, start as soon as possible.

Step 3 – Value The Business

Perhaps the most potentially toxic subject of any succession plan is that of business valuation. This is especially true if the succession plan includes one, or more, family members and the potential wish to simply give some of it away. It is even more toxic if you wish to extract the full market value from the transfer of ownership to family members.

Valuing businesses is another subject (see: How to Value a Business), but the advice in this context is to simply know one way, or another what the business is worth. Don’t guess in other words. Speak to professional advisers such as your accountant or Business Brokers such as A2Z Business Brokers to get an informed, independent view of what your business is likely to be worth.

Once you have an estimate of the true value of the business you can then deal with the handover of ownership in a rational manner. For example, you will see from the full valuation the amount that you need to have to walk away from the the business (especially if retiring) and, if some of the business is being given away, then the recipients know the full value of what they are receiving.

The key point in this, especially if family is involved, is that, if you have an independent valuation, it removes all of the potential arguments about the worth of the business. You can then just be concerned about the details of the transfer of ownership.

Step 4 – Identify the Successor(s)

Identify SuccessorsYou might think it a bit odd that identifying the successors is step 4 of a succession plan and not step 1. The reason for this is that you probably have one or more successors in mind when you start the plan, but may change your mind when you go into the detail. Certainly evaluating the business worth and what you need to financially retire from the business, may force you into a business sale rather than a handover. This may be because you simply cannot find a way to extract the required amount of money from family members as it will create too much of a financial burden. The exact opposite, in fact, of what you would ideally like to achieve.

This may also be true of any prospective management buyout, where the financial stresses that would have to be endured by the potential buyer(s) might be just too much and you might have to save them from themselves. After all, if you are retiring, it would be nice to sleep at night.

Identifying the successor(s) therefore comes later in the plan when you have all of the basic facts on hand to make an informed choice as to the best way forward for all concerned.

Not least of your considerations will no doubt be the employees and their long term employment. Whoever does take up the reins should be capable of taking the business onwards and upwards – securing the business for all.

You may also wish to consider keeping a financial interest in the business. This can be a good half-way house to not taking too much out at the departure, while at the same time growing the remaining interest you have for future benefit. The downside of this approach is that this remaining value can go down as well as up and so you have to be sure you can afford to lose some, or all of this remainder in the medium to long term – as it will ultimately be out of your control.

It may not be entirely out of your control, of course,  if you decide to hang around like Banquo’s ghost with a ‘non-executive/adviser’ role. However, this path is fraught with the danger of unintended consequences and the potential to cause new problems while trying to prevent old ones. Consider this type of option very carefully indeed.

Step 5 – Financial Audit

Once you know the successor(s) and the final mix of how you want the succession handover to work, there is one final check to make before moving things on. A financial audit needs to be undertaken to identify the tax risks (and opportunities) on each involved party, to make sure the handover is as tax efficient as it can be within the law. This is not advocating fancy offshore, film investment fund type schemes, but maximising the use of allowances and tax rules – many of which are there to encourage entrepreneurship and business investment.

An accounting or tax advising consultant is essential here. Tax rules are complex and are constantly being changed. Only a specialist could possibly have a fighting chance of understanding their byzantine complexity.

Be aware that this exercise can potentially lead to further adjustments to the make up of the successor ‘mix’. The use of external advice can bring much needed independent clarity to a potentially emotionally fraught subject.

Step 6 – Make it Legal

Once you know how you want the succession handover to work financially, it is time to make it legal. A formal agreement can be as much a statement of intent as a legal document dictating the fine details of the handover. A bit like a will in other words.

Formally means the involvement of a legal professional which is highly recommended for two reasons. Firstly the legality of the document can be quickly called into question by badly formed clauses, or even missing provisions. This could cause real problems if there are a number of parties involved, and/or if the agreement ends up being like a real will and you have actually fallen under that proverbial bus.

Secondly, as with other steps, an independent legal professional can bring clarity to the process beyond the legal detail by setting the boundaries in which you can act and introducing new considerations from their experience and legal knowledge. This independence can also be used to settle arguments, or conflicts – the independent view has no axe to grind.

Step 7 – The Handover

As stated at the outset, just because you have a plan does not mean you have to execute it straight away, or even at all. The planning process exposes all of the details that need to be considered in a handover, the final piece of the jigsaw is just when and perhaps how.

It is likely that finance will be required somewhere along the lines and so banks, external investors and probably accountancy support will be required when it is time to bring the plan to reality.

Although this step is huge, it can be left until relatively late. However, the detail of what will be undertaken in this step should have been considered earlier – specifically step 5.

At ths stage you should also consider various levels of insurance to protects against key players in the plan becoming incapacitated, or even deceased.

It may happen quickly, or it could be highly protracted over many years to fit preferences and circumstances – you will have to decide.


Life is a funny business, and whether your religious preference leads you to believe in predestination, or the randomness of a god free world, either way the chances are you do not know what will happen to you later today, let alone tomorrow, or next year.

They say that luck is where opportunity meets preparation. This can be as true of survival as it is of the acquirement of wealth. Studies have shown that a higher than average percentage of people survive things like building fires and aircraft crashes, because they know where the escape exits are and/or have consciously studied escape routes before the emergency occurred.

There is always, for all of us, the risk that an exit from a business we have setup from scratch and nurtured through diligent hard work over many years, will be forced on us by an accident, by ill health, or other twists of fate. A succession plan is a defence against that eventuality. It is a life boat that will potentially allow the owner and the business to part company in an orderly fashion, with both intact and able to survive separately, both operationally and financially.

As the Titanic showed us way back in 1912, the time to put the life boats on the ship is at the port of departure, not at the destination, or half way there after you have hit the iceberg.

Download here the Infographic on Retirement & Succession Planning.

If you do not have a succession plan, then you should be starting on one right now. If you need any assistance, then A2Z Business Brokers would be happy to help – why not get in touch now?


* For the purposes of this article, an SME is a business that employs fewer than 250 people and has an annual turnover below 50 million euro (approx. £40 million) and/or an annual balance sheet total below 43 million euro (approx. £34 million).  We can just add to that, the business is wholly private and not part of a larger group in any way.

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