Succession planning makes all the difference
◆ Baby boomers deserve the best for their businesses, writes Finlay Swan
The 13.9 million baby boomers in the UK, defined as those born between 1946 and 1964, are driving the single largest transfer of wealth ever recorded in the western world. Despite the wealth amassed by a group known for hard work and entrepreneurship, their money is often invested in a business for which there has been very little succession planning.
More than any other demographic, baby boomers tend to tie up a disproportionate amount of their wealth into a company. This can become a problem as retirement approaches. If your business is your pension, having a succession plan in place is critical if you’re going to fund your golden years and want to leave an inheritance.
Increasingly, younger generations have no desire to follow in their parents’ footsteps and take on the family business. Young people have a whole variety of career choices, such as jobs in technology and new media, and easier access to education. As a result, founders cannot rely on children to take the reins. With no obvious successor, baby boomers often don’t give the issue much thought until they want to retire.
A prime example of this can be seen in the pharmacy industry in Scotland. Thirty years ago, a large proportion of Scottish pharmacies were founded and run by baby boomers. Increasingly, these are being bought by private equity and larger conglomerates. The outcome is a real consolidation of the market.
The appeal of baby boomer businesses is readily apparent: brand recognition, steady cash-flow, market knowledge combined with typically strong supplier/client relationships. From the seller’s point of view, however, there are a number of issues to bear in mind. I deal regularly with baby boomers commonly selling pharmacies, dentists, opticians, manufacturing and engineering firms. Part of my job is to ensure smooth handovers to buyers.
Sellers, and long-serving staff members, know the business inside out but this wealth of knowledge has to be documented. All contracts, internal processes, employment procedures and record-keeping mechanisms have to be reviewed. They must be organised, accessible and comprehensive, all of which streamlines the sale process massively.
A crucial part of a successful transition is the creation of a contract that legally protects the seller. In the haste to get a business off your hands, it’s easy to be railroaded and omit terms which protect any warranty and indemnity claims after the sale.
Whilst everyone wants to get the best deal for their business, for some this isn’t necessarily the same as achieving the highest price. A desire to preserve a legacy can make sellers more discerning in choosing a buyer.
Employee share incentive plans where employees gradually become the owners are becoming increasingly popular, partly because the seller knows the staff. There are also tax benefits involved.
Brokers can be helpful too when it comes to finding buyers given their vast network and market knowledge.
There is undoubtedly time, careful thought and expertise involved in the sale of a business but proper succession planning can make all the difference. At the end of the day, sellers deserve to enjoy the fruits of their lifelong labour.