How to make succession planning work for your business

Succession planning is vital if your business is to maintain its value when you decide to take a back seat or step aside completely.

Entrepreneurs often put their own stamp on a business to such an extent that performance dips without them at the helm. Think about what happened at Apple when CEO Steve Jobs announced he was taking an indefinite period of medical leave – the company’s share price opened six per cent lower on the day the news broke – or when Sir Terry Leahy announced in 2010 he was to retire from Tesco, knocking a reported £750million off Tesco’s value.

This is a problem that is compounded if the new managers are (or perceived by customers to be) unprepared or inexperienced.

Why you need to act now

This means succession planning must be factored in long before the owner takes his or her foot off the pedal. A time-frame of 12 months to three years is recommended.

This enables any issues to be resolved well in advance so that the business will stand up to the close scrutiny of potential purchasersand their professional advisers.

The importance of a strong management team

Identifying potential purchasers is another crucial element of succession planning. A capable senior team will not only maximise the price if you sell to an external purchaser, but also creates options for a management buyout.

For example, we recently advised on the sale of a successful local business to its acting-manager.

After 23 years of owner-management, Susan wanted to spend more time with her family and less running the businesses. The purchaser, Hannah, had joined the business five years ago as a trainee, so she had a thorough understanding of the business, its 13 staff, and extensive client base.

How forward-thinking pays dividends

Our client first discussed the idea of Hannah taking over 12 months ago. They agreed a working relationship that involves Susan continuing to work 33 hours per week and informed employees at the earliest possible stage.

As a result, the transfer of ownership was so seamless that every client stayed on board and staff members continued to feel part of a successful team. Meanwhile, Hannah has realised her ambition of owning her own business, while Susan enjoys quality time with her family, without losing her links with the business she built up almost from scratch.

If you would like to discuss this or any other commercial law matter, please contact David Filmer on 01772 258321.