The succession or sale of a business requires careful consideration and planning to ensure it can be successful for many years to come.
When asked about their plans for exit, the majority – 35% – said they plan to pass their business on to their children, while 21% will cease trading, and 10% haven’t yet considered how they will leave their business.
Others (10%) plan to sell to a third party who will carry on the ethos and values of the business, and 9% would sell to the highest bidder. Additional options include management or employee buyouts and passing on/selling the business to other family members.
Worryingly, of those respondents planning to pass the business on to the next generation, 36% have not yet discussed it with their adult children and 29% of those expected to take on the responsibility, are not already working within these businesses.
For those looking to exit via the sale of their business, 22% of business owners admitted they do not consider their business to be “structured correctly to maximise the return from a future sale” and a third aren’t sure if it is.
David Wilson, corporate finance partner at Armstrong Watson, said: “Planning on exiting your business is both an emotive process to go through, but also one that needs to be managed with practical rigor, with preparing a business for sale often spanning multiple years.
“Many businesses do not tend to give the level of focus and preparatory lead time to enable a smooth transition of the business and maximise its value.”
Change is certain and planning ahead helps ensure the smooth succession of the business. As part of the planning process, business owners need to consider when this will happen, who will take over the business and how much is it worth.
No one wants to consider a worst-case scenario, but the succession of a business may happen at short notice, and David explains that it is important to ensure governance is in place and that internal systems and controls are robust, as everything the business does must be capable of being scrutinised by external due diligence and potentially being done without the current owners.
When it comes to the successor – whether this is through sale, a management buyout, transfer to family, an individual’s estate (should anything unfortunate happen), private equity – the business must be in a good state and ready for whenever the new owners take over, bearing in mind that the change could happen at very short notice.
“Do not assume that the next generation will want to step in and do not assume that the aspirations of each of the members of the next generation will be the same as each other,” said David.
“Meanwhile, maximising the value of the business needs careful planning, positioning and consideration. Developing the management team to run the business without its owners will
significantly enhance its value, so it will be worth considering a mechanism for locking in and incentivising key staff.”
He added: “The sooner you prepare your business for succession, the better. If no planning for succession has started, then start now – the familiar phrase of ‘failing to plan is planning to fail’ could not be more relevant here.
“Decide what you want the business to look like and then plan accordingly and ensure that any tax implications of changes are properly considered.”
