Are you thinking about stepping back from the daily operational and management activities of your business? Are you thinking about selling your business? Then consider that before you can manage yourself out of the business, through retirement, sale or devolvement to family or other staff members; there is a need for good succession planning, which may include a formal business exit strategy…
Consider the scenario where a forced retirement through sudden ill-health means the sudden shut-down of an otherwise healthy business. In this situation the full financial potential of the business is very often unable to be realised, which can put more financial burden on an already difficult situation. There are many ways to approach the process of succession planning or developing an exit plan, and each are as unique as the business involved; but follows are some thoughts to get you started…
Firstly – what is succession planning? It is a structured process whereby you seek to identify and develop new staff who can replace others who leave, retire or die. Succession planning applies to all positions within in a business. It is a way of managing the risk of a sudden departure of a staff member, so there is in-built continuity planning. It should especially apply to key staff members, whose positions are such that in a sudden departure, the business could falter or fail.
For succession planning to work well, there needs to be an understanding that all talent in the business is managed for the greater good of the business and the community in which it operates. This means employing people who have potential beyond the position they are applying for. This requires the employer to develop their staff’s knowledge, skills, and abilities; and when the time is right - support them into more challenging roles. As your business grows, succession planning enables you to have staff on hand who are capable and ready to fill new roles.
Business exit planning applies to the situation of defining the exit strategy for the owner(s) of the business. It requires a well-designed plan which recognises there are multiple impacts and implications to be considered such as: personal (including wider family), business, financial, legal, and taxation aspects of achieving the exit plan objectives. The exit strategy also needs to consider the leadership succession plan and continuity requirements of the business. Consultation with other shareholders and key financial interests (e.g. banks or other financial institutions) is vital and may well initiate a full review of your business, organisational and/or shareholding structure.
If you don’t want to fully exit the business, then a new role needs to be defined for yourself – which may include governance, or perhaps assuming a previously favoured role such as account managing selected key relationships for the business. However, if you are recruiting a replacement for yourself, once they are fully up-to-speed recognise you need to step back to allow them autonomy to manage the business within agreed parameters.
Selling the business is also an exit strategy – which requires considerable planning and a number of typical outcomes to be achieved to prepare the business for sale. Other exit strategies include: Initial Public Offering, Management Buyout, passing on the business to family, mergers, or even bankruptcy. Introducing new financial or strategic partners is also an exit strategy, either of which may assist succession and survival of the business. Some exit strategies will require specialist advice and legal oversight – it pays to get good advice to ensure that the legacy you envisioned comes to fruition.
The options and opportunities are many, but one thing common to all is to ensure the planning and processes are robust yet flexible enough to respond to new opportunities and challenges as they arise.
If you want some help with your succession planning or developing a business exit strategy, then give me a call!