Successful Succession
Your clients strive for growth, which builds capital value in their business; but to what end? Succession is a critically important part of the business lifecycle, whether it be through realising value or by preserving value for future generations.
There is no shame in planning for succession, indeed quite the opposite. The most successful business owners know that succession should be part of a long-term strategy and game plan, one that cannot be left to the last minute; starting conversations with your clients early generates more benefit for them in the long run.
Succession comes in various guises; the following are some of the more well-trodden pathways:
- Trade sale to a competitor – this is very common;
- Sale to private equity investor, often via a Management Buy Out (MBO);
- Sale to an independent investor, via a Management Buy In (MBI);
- Sale to an Employee Ownership Trust (EOT) – this is increasing in popularity;
- Passing down through the family – this option is increasingly rare.
Your clients do not need to firmly conclude on any one outcome, but as their professional advisors it is helpful to understand their ambitions and what is driving them. Their motivations will drive the right strategy for them.
Most succession options involve some form of an exit which, to achieve the best outcome, cannot be rushed and left to the last minute. Getting a business optimised and market-ready can take well over a year before any process commences and best-practice means having a strategy guiding decisions years in advance.
In an earlier article, I have examined why processes, once up and running are much slower than they once were; but as is always the case, better preparedness makes for smoother and quicker progress.
Your role is crucial
You are critical to your clients’ ongoing success; you are their trusted business adviser and coach, guiding them through their evolving business life cycle. As I have noted, succession planning is an important component of the life cycle for all businesses, one that can create value and security for your clients and fees for you.
Areas which may need work prior to sale and where you may be able to assist include:
- Establishing water-tight contracts with suppliers, customers and staff;
- Putting good forecasting procedures into place;
- Ensuring a robust finance function, systems and controls;
- Defining the route to market;
- Improving the quality of earnings and diversifying the customer base (for example, seeking to eliminate customer concentration);
- Strengthening the management team ready for an MBO.
Broaching the conversation
Whilst your support as a professional adviser is clearly critical, understandably you might feel hesitant to have discussions about succession. For example, you may be concerned about ruffling your client’s sensitivities about their age, the passage of time, or fear of a future unknown. Such concerns can be avoided by making succession conversations standard practice with all of your clients, and not just those of a certain vintage.
Tips for initiating succession conversations include:
- Catching up with your clients regularly to talk about their business in general;
- Helping them with their strategic plans and including succession planning as part of the wider planning and budgeting activities – make it core to their strategy;
- Use subtle language, such as “what are your longer-term aspirations?”, include conversations about their family;
- Owners typically want to make sure their legacy is preserved, this makes a great succession conversation starter;
- Each client is unique, you will know and understand them best, so you are well placed to broach the topic when you feel it is appropriate, but be confident in the knowledge that they will be grateful for your great advice.
Let’s talk
Our Corporate Finance team has advised on the successful sale of more than 20 founder-owned businesses over the past 12 months; we know the pitfalls and the concerns facing your clients.
We would be delighted to help you with your conversations about succession planning; including providing you with guidance, background to the M&A market and talking points for specific clients. Of course, we would also be just as happy to talk with your clients directly and guide them on their best options.
We offer a generous referral scheme for work resulting from these conversations and as a group we do not compete with your core business. Our role is to help you and your clients steer through complex succession planning and deal challenges to secure the right outcomes for all.
In coming articles, we will be looking at how to secure maximum value from the sale and dealing with the potential need for accelerated disposals.
If you would like to discuss any of the issues raised in this article or find out how we can help your client plan for a successful succession, please do give us a call.
Adrian Howells
Managing Director
adrian.howells@quantuma.com
