Whatever stage your business is at it’s important to have some form of succession plan in place. Knowing who will succeed you as the next managing director or CEO is a key part of your underlying business plan and strategy. It’s something that needs considerable thought over the course of your business journey.
Daniel Rose explains why a solid succession plan is vital for achieving your business and personal goals, and why this plan requires plenty of forward-thinking and revision.
Why have a succession plan?
A succession plan is your strategy for handing over the business to a new leader. The key thing to remember with this plan is that it’s not just about selling the business. Your succession plans might mean promoting someone internally, or handing over the reins of the business to the next generation, so don’t just think in terms of a clean exit from the company.
People are an essential part of any business, no-one more so than the founder or owner. If, for whatever reason, you’re not there to head up the company, you need to know how the business will cope. It’s also about knowing who will step into your shoes to take control.
Your succession plan is a vital part of your overriding business strategy, and something that every owner needs to put some serious thought into.
Knowing your goals as the owner
Understanding your own goals is also extremely important. These goals should be factored into your succession plan and the long-term strategy of the business.
For example, ask yourself:
- Do you want to exit the business and make a clean break?
- Do you want the business to continue without you and to find a buyer?
- Do you have your eye on someone internally who you want to take over?
- Who will move up to take over from your deputy if they take on the top job?
- When do you want to retire? Do you want to gradually reduce your days, or just step back entirely from the business?
Succession is like an ever-moving conveyor belt, with people moving along to fill the top roles. People want to progress and have that ambition to move up, so you need that conveyor belt, and a plan of how this will work in practice within the business.
Planning for succession right from the start
Some new owner-managers ask me if they need a succession plan right from the start of the business. My answer is that you certainly need that forward-thinking outlook from the beginning.
If you’re a brand-new startup, where there are maybe two shareholders, you should have a succession plan and exit strategy in place ASAP. As an accountancy firm and a partnership, we have to do that ourselves – so we know who is responsible should a partner leave or be unavailable.
If you have a company with a sales director and technical director, if the sales person dies, that could be tricky – the remaining director can manage the technical side of the operations but not the sales so well. That could affect a lot of people and the underlying success of the business.
To mitigate these kinds of outcome, you need to:
- Pin down your goals as an owner
- Think about the various scenarios and plan for them
- Manage the succession risks, where possible
- Constantly revisit and review your succession plan.
Keeping your succession plan up to date and timely
With the next 12 months looking extremely uncertain, it’s never been more important to think through your business aims and have a robust succession plan in place.
Threats like Covid and Brexit have caused so many issues for a multitude of owner-managed businesses. Fishing businesses suddenly having no workable business model in Europe and family businesses are having to close or make big redundancies. Business strategies are likely to change for a lot of companies – and a change in strategy will also require a change in succession planning for many owners. You may have to work longer and retire later.
Your succession plan is like any other business plan – it’s always changing and you need to revisit it as often as possible. The milestones will change and you need to factor in your current aims as the owner, the pipeline of talent in the business and who you may want to take over once you step down.
Helping you to get your succession plan in order
At Haines Watts Hornchurch, we work closely with our owner-manager clients over the course of their business journey. So we know the succession risks that can appear, and the best ways for you to plan for and resolve these problems.
We’ll help you to look at the aims of the business, your own personal wealth and retirement plans and will prompt you to ask the right questions and focus on the right succession planning areas.
This will include:
- Knowing when you want to sell – are you planning to sell in five years and, if so, can the business survive without you? Having a clear timeline will help to drive the process and gives you a timeframe around which to plan your exit from the company.
- Managing the pool of upcoming talent in the business – is there a conveyor belt of talent coming up through the business to take over from you? If there isn’t, you’ll need to look at talent management, training, promotions and getting the best talent into a position where they could take over the reins.
- Looking at passing the business to the next generation – do you want to get the family on board in the business? Who has the best prospects and the desire to step into your shoes? If you’re hoping to pass the business to the next generation, this all needs to be discussed in depth with your family.
- Assessing options like a management buyout – if you have a talented and invested management team, they may be interested in a management buyout (MBO). But this takes time to plan and for those individuals to access the required funding for the MBO.
Ultimately, you need to think realistically about what you want to achieve, and how you’re going to do that. If you want to sell in six months from now, that’s highly unlikely to happen and will be difficult. You’re more likely to gradually reduce your days, look for a sale and then retire.
You can make it a gradual process, giving you time to communicate the change to staff, suppliers and customers. What you don’t want is a huge material change that could upset all your internal and external stakeholders.
If you’re looking to create or update your succession plan, come and talk to our advisers.
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