June 16, 2023
Succession planning can be a complex and time-consuming process, which is why it is important for business owners to start planning as early as possible. In this article, we answer some of the most frequently asked questions about succession planning.
How prepared are business owners for succession, and do they plan for it?
The level of preparedness for succession planning varies among business owners. While some have been thinking about it for years, for others, it can sneak up on them. When it comes to succession planning, it is important to start as early as possible, ideally several years in advance, to ensure the business is in the best shape to allow a smooth transition of the business to the new owners.
Why do business owners put off succession planning?
Retirement and succession planning can be a significant topic for individuals to contemplate. Often a lack of clarity in relation to the various options, and procrastination get in the way of making a plan and working on the delivery of it. Owners can also get caught up in day to day issues to look further down the line.
However having a plan is not all that’s needed, as things may change or not always go to plan. Resilience, adaptability and commitment are needed to deliver the plan.
Do sales into employee ownership make succession easier?
Employee ownership is becoming a more prevalent trend among businesses. We have found that the nature of these transactions can more easily separate ownership from leadership/management and can therefore create a more transitional approach to succession. The sales are made to people known to the vendors and who understand the business and therefore the approach in relation to a handover is often different to a traditional trade sale.
Are sales into employee ownership appropriate for all businesses?
Whether a sale into employee ownership is a suitable option depends on the organisation’s unique circumstances. Where businesses heavily rely on entrepreneurial leadership, or where an embedded SMT is in place ready to lead an MBO, it is unlikely that a sale to employee ownership will be the best option. While employee ownership can be a beneficial arrangement, it is essential for companies to carefully consider the implications and requirements involved in this type of ownership model.
Are there examples where succession planning isn’t required?
In cases where business owners have already identified whom they believe the buyer of the business is going to be, and there is a larger organisation with a team and structures in place to acquire the business without a senior management team in the target, there may not be a need to plan for succession beyond getting the business ready for sale.
Why would an owner choose Hentons Corporate Finance for succession planning?
The team at Hentons Corporate Finance has experience across a wide range of business sectors, advising a broad range of Owner-Managed businesses. The team have advised both on the buy and sell side of all types of transactions. In addition, we are an SRA-regulated business that can offer a complete transaction service, meaning that we can deliver the corporate finance work and then lead on the corporate legal work. This approach helps ensure that the transaction runs more efficiently from both a cost and communication perspective.
What ensures a smooth process?
Starting early and being clear about what you want to achieve is essential to ensure a smooth succession planning process. It is also important to work with a trusted and experienced professional advisor who can guide you through the process and identify potential red flags.
When is the best time to approach an advisor?
We advise that business owners approach an advisor around three years in advance of the transaction. During this time, you can plan to ensure that your company is in the best position to sell, such as getting on top of your debtors and customers, making sure contracts are in place, and improving profitability or strengthening the management, team if needed.
What top three tips can you give to someone considering succession?
The top three tips for succession planning are to plan early, work with a professional advisor, and try to identify your preferred exit partner. It is also essential to consider what you want to achieve and be clear about your goals from the outset. Start with the end in mind, be proactive, and ensure that you have a clear plan for the future.
If you have any questions or you’d like to find out more, please get in touch here with a member of our team.