When should you begin planning for succession?

Your business will change hands. It’s 100% guaranteed. It’s only a matter of when, to whom and for how much?

Many businesses do not focus on what might come next. Statistical analysis shows that 43% do not have a plan for succession and 15% of businesses don’t make it to the third generation . If there is one certainty in owner-managed businesses it’s that there will be change!

When will your business change hands?

The timing of a business transition can be unpredictable. Therefore, it’s essential to be prepared for change at any moment. Ensure governance is in place and that internal systems and controls are robust. Everything that the business does must be capable of being scrutinised by external financial, tax, and legal due diligence and potentially in the absence of the current owners.

Who will take over your business?

The future of your business could involve a trade sale, management buy-out (MBO), private equity, transfer to family or your estate (should anything unfortunate happen to you), or even transition to an employee ownership trust (EOT). However the transfer might happen, it’s crucial to make sure that the business is in a good state for whenever the new owners take over, bearing in mind that the change could happen at very short notice. Remember, it’s not safe to assume that the next generation will want to take over, or that their aspirations will align.

How much is your business worth?

The value of your business usually depends on EBITDA. To normalise and maximise this needs careful planning and consideration. Developing a management team capable of running the business without its owners can significantly enhance its value, so consider implementing a mechanism to retain and incentivise key staff.

Start planning now!

The best time to start planning for succession was five years ago. If you haven’t started yet, the time is now. The phrase ‘failing to plan is planning to fail’ couldn’t be more relevant. Decide what you want your business to look like in the future, plan accordingly, and ensure that any tax implications of a change in ownership are properly considered.