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8 Key Steps For Successful Business Succession

Monday 17 November, 2008
Astute business planning, management and execution is absolutely essential to the continuity and longevity of businesses of all sizes. Consider this framework for successful business succession.

It is a prudent management measure to protect the lifetime of your business well beyond its current operation and ownership structure.

Exiting the business is not a question of ‘if' but ‘when' and the planning, managing and executing strategies will help provide you with some say in how the future unfolds.

No matter which exit strategy you have chosen, the process should be seamless, effortless and orderly. Planning, managing and executing your business succession properly, will see you exiting the business easily and profitably.

Succession explained

‘Business succession' means many different things to different audiences.

For public companies and for privately-held companies where ownership is ‘continuous', the focus of ‘succession' is on the development, retention, growth, and promotion of talent.

For all other businesses, where ownership does not rest in the same ‘hands' over time, ‘business succession' means something quite different.

First, ‘succession' implies an orderly hand-over by a CEO to a successor. Second, it suggests an owners' exit from their business through total or partial divestment of ownership. Third, it recognises the passing of the management baton.

In fact, for ‘retiring' or exiting owners, the number, combination, and complexity of available succession options is quite amazing.

Increasingly, business succession is becoming an important issue for Baby Boomer entrepreneurs. Paradoxically, it is also an issue which is either ignored, deferred, or both. Why?

Entrepreneurial owners are often emotionally ‘engaged' with their businesses. They find it difficult to acknowledge that their ‘tenure' is coming to an end. Even worse, they cannot imagine what their future life's purpose will be like without their business.

For some, the choice of a successor is neither clear-cut, nor potentially easy, especially when the choice of one successor over another is likely to be disruptive to internal business, partnership, or family harmony.

The most significant reason most business owners give, when asked about their failure to plan, is that they have no clear direction to follow. They simply don't know what to do - and they don't ask!

Eight key steps to successful business succession:

  1. Determining the strategy

    • Timing of the exit - How much time do you have to plan for - and implement - an exit?
    • Type of exit - Total divestment? Partial divestment?
    • Business value - What is it now? What would you want to take from the business? How will you increase the value?
    • Develop a succession plan
    • Anticipate and plan for complex issues
  2. Benchmark the business

    • Is the business a ‘turn-key'? - Would it be ‘easy' for a new owner to operate?
    • How strong and clear are your systems and processes?
    • How does the business ‘look' and perform relative to others in the same sector?
    • Is the business in the best possible ‘health'? - How appealing would it be to a potential purchaser (external or internal)?
  3. Risk analysis

    • What are the risks to the business of a change of ownership or a change of management or both?
    • How can those risks best be managed?
    • What risks are there in relation to the retention of key people? How will these risks be managed?
  4. Option analysis

    What represent the best option for an exit? Some of the likely options include:

    • Trade sale
    • Management buy-out
    • Generational / family transition
    • A listing on the Stock Exchange
    • Private equity investor
    • Is there an ongoing role for you in the business, for example, as a non-executive Director?
    • Is there a requirement for you to stay with the business for a period of time? Will this work? In what role?
    • Some options will require financing. To what extent would you provide ‘vendor' finance? How comfortable are you with the balance between ‘financing risk', ‘control', and ‘security'?
  5. Ownership and structure

    • Are there issues in relation to your current ownership structure which will compromise your exit?
    • How might the ownership of the business be structured in the future if you are planning for a generational / family transition?
    • Is the management structure of the business optimised to deliver the best succession and exit outcome?
    • If a partial divestment is an option, how much are you prepared to ‘give up'? At what cost? And with what constraints?
    • What do you know about - and how do you feel about - dilution of your ownership?
    • If you retain ownership but divest management, where will your successor be found?
  6. Personal planning

    • Take the time to structure your personal financial planning and estate planning matters
    • Take advice from your tax adviser about the tax issues arising from your exit
    • What is your personal vision of yourself once you have left your business?
  7. Implementation

    • How would you rate your implementation skills?
    • Do you have a history of successful implementation of strategy - or do the multitude of operational issues get in the way of execution?
    • How will you deal with the complex emotional issues and personal agendas which arise during a succession exercise?
  8. Mentoring and support

    Like all changes in one's life, the succession and exit journey is complex, emotionally difficult, and personally and professionally challenging.

    Successful succession and exit is usually achieved through collaboration of your advisers and the facilitation of best advice.

    Succession management will often require the intervention of specialists who are experienced in successfully providing (to business owners who are serious about their exit outcomes) a range of mentoring and support services.

    In choosing such a specialist provider, there are two fundamental questions which need answering: Who can you turn to? Who can you trust?

    Tips to help you choose a specialist provider include:

    • Experience in the succession management environment

    • Skill-set and disciplines appropriate to the complexities of succession

    • Exposure to a range of business environments - size, sector, complexity

    • Clear methodology and processes

    • Flexible in their approach

    • How will they interact with my existing advisers?

    • Able to help me with the ‘balance sheet' and the ‘people' issues

Author Credits

Charisse Gray ( www.writingbusiness.com.au) on behalf of Bill Hovey, Linchpin Group. Bill Hovey, author and CEO of the Linchpin Group Australia and Practice Executive Director of Linchpin Succession Management, has amassed more than ten years advising and counselling business in all aspects of business succession. For further information Ph: +61 2 94680 180 or visit the web sites: http://www.linchpingroupaustralia.com/ or http://www.successionmanagement.com.au/.
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