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By Dave McPhedran
Succession Planning by its very nature is something we don’t normally think about until we have decided to retire. It’s never seen as something that adds value to a business and besides we’ve always got better things to do than to spend time & money now on something that will only matter in years to come.
But the facts reveal an entirely different story. Most businesses change hands as a result of a crisis. Most crises are caused by some form of family upheaval. A crisis by its very nature can’t be planned for.
One thing is certain though, when a crisis occurs the effect is not going to enhance the value of the business.
Instead of selling on your own terms you are selling on someone else’s – or your family is suddenly stuck with the prospect of running a business they are patently unprepared for.
The average age of business owners in New Zealand is 56 and over half of these want to exit their business in the next 10 years. The Dunedin City Council’s Economic Development Unit (EDU) found that 60% of business owners want to exit their business, yet only 28% had valued their business and just 8.6% of those had created a succession plan.
In my years of dealing with these issues I have rarely come across a business that was ready to sell or hand over at short notice.
Yet the thing that strikes me most is that the processes involved in getting a business to this point are in the main the same processes a well run business should be pursuing as a matter of course.
These processes involve, amongst others, the valuing of your business and recording of the systems and processes that drive your profitability – in short a business plan.
The value of a business plan is all too often underestimated, particularly for businesses that are running apparently successfully. However, I am constantly seeing businesses suddenly and unexpectedly coming under pressure merely through unplanned events.
Succession plans and business plans are linked to the point that while you can have an effective business plan without a succession plan, you can’t have it the other way round. Yes it is a lengthy process but as the old Chinese proverb goes – ‘moving a mountain begins with lifting one stone’.
When assisting clients with their business plans we now tend to include succession planning from the outset wherever possible. This can have an exponential effect during the lifetime of the business when major decisions are being made.
Where a desire to exit the business is the driving force behind the planning process, however, the approach is different. A well thought out and executed plan can pay huge dividends when the point of exit is reached.
This is equally true whether you are selling the business on the open market or arranging an internal succession, be it shareholder, family or employee
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