Succession planning top tips

Andrew Hague, Partner at WR Partner

Andrew Hague, Partner

The legacy of many business owners is to leave your business in the best possible shape for a new owner. Operating at peak profitability, with the management information all in order, and all internal processes are documented so the business is running like clockwork. It can take years to do all this. That’s why it’s never too soon to start on your succession plan, or exit strategy.

My top tips for a successful exit plan

1. Get your accounting sorted

You’ll need at least three years of dependable financial records. If your bookkeeping isn't all it could be, get it fixed now. And if there’s something you can do to improve profitability, do it as soon as possible. You want that upswing to show in your accounts as a sustainable trend rather than as a recent spike.

2. Make yourself redundant

No one’s going to buy your business if it can’t survive without you. If you have a team, give them the training and authority they need to succeed. Scale back your involvement. Be less available to customers and clients. Delegate big decisions to enable you to go into work less often.

3. Ensure your business runs like clockwork

Ensure you have formalised (and efficient) processes for getting work done. Who does what, when, and how? Make sure there are systems to guide all this. Potential buyers will be impressed if some things in your business happen automatically.  

Write a “how to” manual for your business, so that other team members could pick up the reins and run everything tomorrow. Record every process, including admin. Make a note of the steps you follow for each of these tasks. While you’re at it, write formal job descriptions for employees and ensure all employee contracts are all in order.

4. Pick a target buyer

There will be different priorities depending on who you're selling to. If it's family, take pains to make everything transparent and fair. You don’t want the transaction to cause tension or conflict between children. If you’re selling to an internal team, be prepared for staggered payments. They’ll probably start with a deposit and pay you the rest from business income. If you sell to the highest bidder, then get all your records in order as otherwise they won’t have any idea how you operate, or what sort of money you make.

Some buyers, such as family or an internal team, won’t have the cash to buy you out straight away. You might have to keep an interest in the business and stay involved to protect your investment. If that’s the case, you’ll need to negotiate ongoing fees or salary. If you want a clean break, you’ll probably be better off selling externally.

5. Figure out how to drive up the valuation of your small business

What are the things that make your business great? Do you have a really outstanding product? Loyal customers? Unique intellectual property? Find the strengths in your business and grow them and protect them, so that they become even more valuable.

Similarly, figure out the biggest holdbacks and fix them. You may need some outside advice to provide this assessment. We can guide and help.

6. Get a guideline business valuation

You won’t know what you’ll get for your business until the day it’s sold, but you can get an estimate. Ask us for a professional valuation. A guideline valuation will help satisfy your curiosity and set realistic expectations. If they predict a lower price than you’d hoped, you might delay your exit, and spend some time building value in the business.

Buyers need to be excited by your business, so come up with an elevator pitch that captures the essentials. Craft a story that explains why you got started, how you’ve grown, and what you’ve achieved. Paint a positive picture of the future, too, but keep it real. Incorporate projections and facts to support what you’re saying.

Exits happen

Exiting your business is inevitable. It will happen whether you’re in control of it or not. So make a plan now and start getting your business ready for the next owner. It will help you command a better price, and increase the chance that your business survives.

And remember that anything you do to benefit your future buyer, will also benefit you. You’ll have a more efficient, profitable and easier to manage business.

It’s never too soon to build a business exit strategy. Speak to the WR Partners advisory team. Give me a call on 01606369000.