How to succeed with succession planning
By Chris Young*
EVEN if you don’t plan on selling your business now, focusing on how you want to exit your business when the time comes could mean the difference between spending your retirement in Costa Rica or camping in your backyard.
The life of a business owner is a hectic one and it’s difficult to find time to plan for the future. However, it is important to have a succession plan, even if you don’t intend on using it for another 20 years. What you do today, affects your sale price tomorrow.
Now is the time to consider your goals and decide how you would like to exit the business or reduce your participation in the future. Decide if you would like to pass on the business or if you will sell to fund your retirement.
With a succession plan in place, you’ll be prepared for unforeseen eventualities so if you do need to exit your business earlier than anticipated, you’ll do so knowing you’ve done everything to obtain the best price possible.
The following steps will help you to prepare a succession plan, regardless of when you sell:
The right time to sell your business
Most owners discover their need or desire to sell their business comes at a time they least expect.
By having documents such as your operating procedures up-to-date, as well as a low reliance on the owners generating income, a reliable second tier management of more than one person, and a five year plan with a sales forecast, you are well on your way to your business being ready for sale.
Planning your exit strategy
Define your goals and benchmarks, find trigger points for decisions and ensure you have realistic expectations of the value of your business. Put yourself in the shoes of a potential buyer. How much would you realistically pay for your business?
• What affects the selling price of your business?
• When prospective purchasers look at a business, they look at the history and performance of the past three to five years.
• They will consider proprietary products and your database as well as what competition you have.
• They will analyse your percentage of repeat clients, and what service contracts the business has.
• They will want to know who the key staff are and how difficult it is to find experienced staff.
Factors to help maximise the selling price
Your business location and whether the property is owned or leased plays an important role, as well as supply or purchasing contracts, your captive market, proven competence of management, and how old your five-year plan is. If it is recent, this will show you are on top of the business.
Motivation of buyers looking at your business
It is important to communicate the value of your business in a language potential buyers understand.
They will be looking for growth by acquisition, competition, consolidation of the market, an opportunity to increase profitability, technology and efficiency, ways to expand products and increase the customer base.
Value of IP (database)
Potential buyers will want to under-stand your client relationship management processes and they will
assess how you gather and use infor-mation and what the true value is.
By putting processes into place now, you’ll be ready when the time comes to sell. Leaving things to the last minute not only makes you look disorganised, it doesn’t create a positive impression for the person you need to impress most—the potential buyer.
Remember, the sale price is not about how much success you’ve had with your business, it’s about how much success someone else thinks they can have with your business without you there.
Final thought: Imagine you’re a buyer. What is the weakest aspect of your business? What can you do now to turn this negative into a positive? Remember, what you do now will have an impact on your business’s future, no matter how distant.
* Chris Young is training and implementation group manager at the Resurg Group and has 14 years’ experience in retail business management. Chris is responsible for Resurg’s education strategy where he develops and helps facilitate the workshops and performance groups that are a key part of Resurg’s profit improvement methodology.