Exiting a business is one of the biggest decisions business owners face. Without proper planning they may be unable to exit when they want or without the means to fund the kind of retirement they aspire to.
Many business owners make assumptions about the value of their business and how easy it will be to sell. Real life can be very different as an estimated 80% of businesses put up for sale actually fail to sell?
It is vital to understand the true situation early on so you can make your exit happen when and how you want.
The most common mistakes include:
- Underestimating how long it takes to prepare a successful planned exit
- Not considering all the different routes available to exit the business
- Not bringing in external expertise when needed for strategy and tax planning
- Not looking at the potential within the business to increase value before the owner exits
We recently held a client conference on business succession issues and the following issues were discussed.
KEY ISSUES
Emotions play a Key Role
• It can be difficult for an owner to talk about their role and the future of the company without picturing themselves in it
• However, often what the owner doesn’t realize is that they are in control of the transition and the future success of the company and that control comes from the planning process
• One of the greatest legacies an owner can leave behind is the successful transfer of the business to the next leader(s)
Tough Conversations
• Involved family members need to be part of discussion
• Is there a logical leader and do they want to lead
• Financial discussion on how to be fair with all those involved and not involved
• While tough conversations, doing nothing can be far worse, often can cause unrest and uncertainty with employees, customers and family members
Permission to make mistakes
• The actual transfer of control, whether over a short period or longer, commands the business owner to “Let Go”
• We all learn from our mistakes, if you do not allow them make decisions for fear of them making a mistake, they will not learn and grow
• It is important that you step back, allow them make decisions, praise the good decisions and be there when they make mistakes to help them learn and improve
• The joy that comes from seeing them succeed, is worth all the work put into the transition
Everything has a Cost
• Owners delaying retirement because they feel they can’t afford to retire, are in good health and will be for years or there isn’t a natural successor run the risk that they will have regrets that they are too old or in poor health to enjoy their retirement
• Where over the years you have provided yourself with financial independence, away from the business, via pension or other assets it greatly assists succession
• Also having personal interests outside of the business is healthy and does not tie all your values of self-worth to the business
Surround yourself with people to assist you on the journey.
VARIOUS LEVELS OF COMPLEXITY
- Clear Successor
- No Clear Successor
- Management Team to operate and Family retain ownership
- Sale of Business (MBO or Market Sale)
- Multiple Children in Business – Difficult now but even more difficult for the next generation
- Providing for Other Children either in or outside the Business
- Integration of Child Successor and Management Team
- Timing of Parents stepping back and allowing the Children to run the Business
- Multiple Unconnected Families in the Business
- Sale is the easiest
- Buying out other Shareholders – Last man standing risks
Every situation is different but having a planned process is important to a successful Business Succession
DETAILS DEFINE THE PROCESS
As Roy Keane said “Fail to Prepare, Prepare to Fail”
As the business grows and operates it is important that you understand what you are trying to achieve.
The following all assist
• Interests Outside of the Business (assists with the emotional connection to the business)
• Financial Independence from the Business (assist with financial concerns – having enough money to retire)
• Understanding the Family Dynamics (communication)
• Strong Management Team (whether family or non-family)
• The Ability to Step Back (is it really a business if dependent on you?)
• Communication and Culture of Growing Employees
If advice is required please contact Seamus Parfrey at seamusp@parfreymurphy.ie or call 021 4310266.