SUC­CES­SION PLAN­NING BE­GINS WITH LIFE GOALS

SUC­CES­SION PLAN­NING SHOULD BE SEEN AS EX­CIT­ING AND AN IN­VEST­MENT IN GAIN­ING CLAR­ITY, RATHER THAN SOME­THING TO BE DREADED, SAYS EVANA LITH­GOW.

NZ Business - - CON­TENTS -

Suc­ces­sion plan­ning should be seen as ex­cit­ing and an in­vest­ment in gain­ing clar­ity, says Evana Lith­gow.

An Ice­house sur­vey of busi­ness own­ers found a wide range of mo­ti­va­tions be­hind start­ing out in busi­ness. Mak­ing money (seven per­cent) was just one, and not as im­por­tant as pas­sion for bring­ing a prod­uct and ser­vice to life (25 per­cent), mak­ing a name for the founder (20 per­cent), or cre­at­ing a legacy for fam­ily (18 per­cent).

Just as mo­ti­va­tions vary for start­ing a busi­ness, so do the rea­sons for sep­a­rat­ing from it, which can cre­ate com­plex­ity when the owner wants to exit.

Leav­ing a fam­ily legacy is an im­por­tant mo­ti­va­tor for many own­ers early on, but in prac­tice how do you choose which chil­dren might or could run the busi­ness one day? Even start­ing a con­ver­sa­tion about this can be a daunt­ing prospect.

Many of the busi­ness own­ers who come to The Ice­house for ad­vice fall into one of th­ese sce­nar­ios: 1. Young, cre­ated a high value busi­ness, maybe tech­nol­o­gy­based, and now sim­ply want to cash it in. They may not have thought about what’s next, per­son­ally or pro­fes­sion­ally. 2. Older, set out to cre­ate a legacy, but don’t re­ally know if their chil­dren want to be in­volved, and are un­sure how to ap­proach this in the right way. If their fam­ily is not in­ter­ested in taking on the re­spon­si­bil­ity of run­ning the busi­ness, th­ese own­ers are then of­ten look­ing to sell. 3. Older, forced to sell through ex­ter­nal fac­tors, such as their

own poor health or the health of a close fam­ily mem­ber.

While en­trepreneurs are of­ten en­cour­aged to think about their ‘exit plan’ from the out­set, the re­al­ity is that the daily ‘ to-do’ list soon gets in the way. A re­al­is­tic suc­ces­sion and tran­si­tion plan can be on a five to 15 year hori­zon de­pend­ing on the fit­ness of the busi­ness, in­dus­try po­si­tion­ing and other fac­tors. Un­der­stand­ing the level of in­ter­est from fam­ily, em­ploy­ees or other re­lated par­ties also takes time, which needs to be al­lowed for.

Of­ten I’ll be ap­proached for ad­vice by an owner ex­pect­ing to ‘wrap things up by 31 March’.

Tim­ing is ev­ery­thing and the worst case sce­nario is be­ing forced to sell into a buyer’s mar­ket – some­thing which, with a lit­tle fore­sight, can be avoided.

Some­times hard truths have to be faced – and the sooner the bet­ter. The hard­est ques­tion to con­front is whether a saleable busi­ness ac­tu­ally ex­ists. A busi­ness can be prof­itable but un­saleable if the owner is the pri­mary sales­per­son, hold­ing the client data­base in their head and with no real back-end sys­tems and pro­cesses.

I ask clients, given what they know of their busi­ness, would they want to buy or be given it? ‘No’ is a com­mon re­sponse.

An­other re­al­ity may be that the strengths that made the founder suc­cess­ful in busi­ness are not what’s re­quired to as­sist them mak­ing a smooth tran­si­tion, mean­ing an in­vest­ment in new skills or peo­ple, or change in op­er­at­ing struc­ture and ap­proach is nec­es­sary.

In saying this, it’s not all doom and gloom! I reg­u­larly re­ceive feed­back from clients on how pos­i­tive and en­er­gis­ing it can be for the owner, fam­ily and em­ploy­ees to cre­ate the space to con­sider this topic. Some­times change can un­cover tal­ent within the busi­ness as in­di­vid­u­als rise to the oc­ca­sion. Work­ing to a longer term hori­zon not only pro­vides the time to cre­ate value, it also en­sures that the owner max­imises value upon exit.

A suc­ces­sion and tran­si­tion plan pro­tects the owner from mak­ing an emo­tional de­ci­sion to sell to an op­por­tunis­tic bid­der, af­ter say a tough day in the of­fice, or re­turn­ing from hol­i­day.

A plan also en­sures that al­ter­na­tives to an outright sale have been con­sid­ered, with the proper guid­ance. This might be an al­ter­na­tive fi­nan­cial struc­ture that al­lows you to re­tain part of the as­set, or a dif­fer­ent op­er­a­tional struc­ture that means you can step aside from the day-to-day run­ning but con­tinue work­ing with your largest clients.

START WITH THE END GOALS IN MIND

While suc­ces­sion plan­ning and tran­si­tion should be part of a busi­ness plan, and re­viewed reg­u­larly, it is ac­tu­ally big­ger than that. Suc­ces­sion plan­ning is about an­swer­ing what the owner wants from life, and where and how the busi­ness sup­ports that.

For many own­ers, a bet­ter goal than work-life bal­ance is ‘work­life in­te­gra­tion’.

So what does good suc­ces­sion look like? It meets the needs and goals of the busi­ness owner and the needs of other stake­hold­ers. Think about suc­ces­sion and tran­si­tion from three per­spec­tives: yours, the busi­ness, and those stake­hold­ers work­ing in the busi­ness (in­clud­ing your­self).

Be­ing clear in your mind about those mo­ti­va­tions means you are less likely to cre­ate anx­i­ety for your­self, staff and fam­ily about the fu­ture.

Avoid mak­ing prom­ises to fam­ily or staff re­gard­ing fu­ture own­er­ship by not ‘think­ing out loud’. In­stead, de­velop and test your think­ing first, ide­ally with an in­de­pen­dent per­son.

Suc­ces­sion plan­ning should be seen as ex­cit­ing and an in­vest­ment in gain­ing clar­ity, rather than some­thing to be dreaded. An ef­fec­tive process should in­volve all stake­hold­ers and re­tain the re­la­tion­ships nec­es­sary for the busi­ness to re­main suc­cess­ful – and for the pre­vi­ous and new own­ers to be happy.

Think about suc­ces­sion and tran­si­tion from three per­spec­tives: yours, the busi­ness, and those stake­hold­ers work­ing in the busi­ness (in­clud­ing your­self).”

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