Succession Planning and Preparing to Sell Your Business

How to 'oven ready' your business

This is what was covered at the Loates, Simpsons and Dains collaboration event held at the stunning Cotton Shed at Darley Abbey Mills on the 21st January. If you missed it let us take you on a whistle-stop tour.

There was a main theme to the event and it was planning and preparation. If you are looking at succession planning or getting ready to sell your business there’s things you need to do way in advance of actually popping it up for sale.

Kicking off with business wills

Lauren Bailey, from Simpson Solicitors, who are a niche wills and probate company with a base in Derby eloquently walked the business owners in attendance through everything business will related.

Of course many of us already have a will, but the market research in the room suggested that most of us aren’t reviewing it every 12 months. And that those common myths need to be busted (if you are married so spouse inherits everything) and whilst death is an awkward conversation it’s one that must be had.

It’s essential that your business will is part of your business planning to ensure the succession you envisage for a company you’ve built during your lifetime. And there’s law that you’re probably not aware of like if you’ve owned a business for 2 years (or more) and are genuinely trading (different rules for if you are operating a property portfolio for example) and you’re not selling the business when you pass away you can pass it on completely tax free whatever the business is worth. The crucial part of the planning is WHO will you leave it to? Because here is where it gets complicated; if your family inherit but sell then they’ve turned it into cash, which will become taxable under inheritance legislation. But it’s not just this that matters, you could be in business with a partner or multiple stakeholders where the family member inheriting could become disruptive. There’s multiple ways your beloved business could suffer at this point from family selling to an unwanted party, getting involved when not commercially minded. There’s a way to minimise these complications; insure yourselves so your surviving business partner can purchase the shares back so BAU can continue.

Then there’s Lasting Powers of Attorney, not just relating to your health discussions but also your financial setting. It’s often wise to ensure you give power of attorney to a trusted person either within your business or outside who can ensure the continuity of the business. Let your family handle the health side of things in the best way possible without worrying about a business they are likely not to be involved in.

‘Your Future, Figured’ with Dains

Jenny Moore, a corporate finance director at Dains Accountants who are a full service accountancy firm with an office in Derby lead us through preparation for owner managed businesses to get ready to sell.

Aspirations and goals are something Jenny regularly talks about with business owners. She’s got 4 golden rules for succession planning:

  • Understand business’s worth; the biggest asset and how to get value out of it when selling. Dains are driven to get the best value out of a business when it’s sold.
  • Work out your preferred exit options
  • Preparation is key; ‘I want to sell my business NOW, I think it’s worth £10million’ is not an ideal conversation starter for a corporate financier. It’s a minimum of 3 years worth of preparation required to get the best value or selling price
  • Build a team of trusted advisors

When it comes to value there’s much meant by this; improving the value, how you value a business, what drives help to improve a businesses balance sheet, how long will it take to get the sales value wanted (and all business owners have a figure in mind!).

Understanding what your business is worth is fundamentally driven by what a buyer is prepared to pay or what a buyer can afford to pay. Whilst the accountants have some formulas to work out a business value it’s not an exact science.

Having up to date high quality management accounts will help with business valuation. Make it easy to see the profitability and cash generation; whether you’ve had a sustainable year or maybe grown (or the reverse!). Combining this with the quality of profits; what’s your order book looking like, are your clients regular or do you land some big projects each year? This is business intelligence you need to have accessible.

Of course the value of any business will depend on the sector you operate in, the performance of your business in that sector and the demand for buying. Are there barriers to setting up in your sector? Does this make your business more attractive to buyers? This is what an advisor will help you to understand. They’ll also help with tightening control of your overheads, understanding when to invest and in what so your CAPEX is well managed, making sure your working capital is good. The buyer will always want to understand the ROI of their investment so Jenny stressed preparation and great management information is key.

A bus journey with Loates HR

Sarah Loates, owner of Loates HR Consultancy, an outsourced provider for human resources and training who love what they do kicked off with a double decker to highlight succession planning on the people side.

The important thing is to recognise that you need to do succession planning and that the likelihood of selling your business is based on two factors:

  • Financial performance
  • Your management team; are they capable of running the business without you the owner? What’s the readiness of the management team to run the business?

Sarah lives by the proverb if you fail to plan then you plan to fail. Don’t leave it too late; it takes a minimum 18 to 36 months to develop talent to grow the business. Leadership capability is seen as a competitive advantage, your succession planning is NOT about replacing the CEO. It's about developing talent throughout the business. The typical options are grow or buy, and in a tight labour market buying is expensive. Growing talent takes time.

So back to the bus (as developed by Jim Collins in his book from Good to Great), as the owner you’re the driver and you need to the right passengers on your bus. You’ve GOT to recruit the best for your business (in order to do this you need to be really clear about what you are looking for) and then importantly get them into the right seats. The critical seats on the bus need to contain the right people.

If the wrong people are on the bus you need to respectfully get them off.

Once you’ve got the perfect passengers and they’re all doing a good job making the wheels on the bus go round then get them a bigger seat! This means you need to develop them to achieve more.

Succession planning also needs to take account of where the business is heading. Straw poll in the room: there were only a very few hands for who’d done a business strategic analysis in the last 5 years. It’s important to work out your strategic direction. If you do it well then it guides you with the type of people with what know-how and skills you need on the bus. Growth or diversification need certain skills to take your business in the correct direction.

The key seats on the bus are the critical roles that are fundamental to the performance of your business, Look at the difficulty of replacing an individual; do they have key relationships with suppliers? Are they holding all the sales pipeline relationships? Succession planning is about managing risk; what’s the likelihood of it happening and the impact if it happens? You have GOT to preserve the value in the business. The business will need to know what knowledge, skills and experience are needed to get to the destination? Which will provide a competitive edge.

Do a bench strength test of your management team; it’ll help you understand what roles need to be filled at all levels. You may have a weakest link on the management team this may hold the business back. You need to address this.

Bench strength is about assessing potential do they have the ability to grow and undertake next level roles?  Make sure you don’t lose them, you need to nurture and develop them. Coaching and mentoring will help talent to grow within your business, secondements, sabbaticals, stretch projects are all ways to grow your employees.

Employees will also have needs from development after all it’s a two-way street. Develop your people, coach them, train them, find your talent pipeline and keep them on the bus! You can keep them on the bus by rewarding them properly.  Talk to your employees, understand what makes them tick and drives them.  Get your culture and values right, and ask your team what they really value.

Fill the bus seats with the best passengers for your destination.

A raffle with a different sort of fizz!

Mee & Dee founder Maria Hanson outlined the 2020 Vision for the holiday home in Sherwood Forest they are funding for families with a pending death. To give them the last bit of time together in a bit of luxury, where they can have quality time as a family is the charities driver. Over the last 12 months they have helped eighteen families with holidays. They are selling ‘bricks’ to help fundraise, so far they’ve sold an impressive £105,000 worth but there’s still a remaining £44,000.

At the oven-ready your business event one brick was a raffle prize, won by a building services firm who committed to buy another brick too. A perfect way to end an event.

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