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Passing the baton – a succession-planning guide

July 24, 2017

How do you hand on a business you’ve spent years nurturing? This is a challenge facing many business owners as they eventually Succession circles jpgaccept that they cannot go on forever. This month I’ve teamed up with Peter Jenner, from William Battle Ltd, who specialises in business succession to compare his process-focused approach with my psychological perspective.

Peter has a model which aims to plot a course for successful succession, which he envisages as concentric circles radiating out like ripples from the centre, though obviously there’s overlap between them.

 

Aspirations

Peter says: Everything starts with aspirations – yours and those of your likely successors. What do you want for the business? What’s your legacy? How do you want to spend your time once you’ve handed the business over and how much money will you need to fund your lifestyle? How much control are you willing to hand over? If it’s a family business, there’s the added issue of whether your children actually want to take over the business and how you treat them all fairly – though not necessarily equally.

Caroline says: It’s very important to take time exploring and discussing your aspirations. This isn’t something to be rushed and may need several conversations and/or lots of quiet thinking time. Don’t duck the difficult conversations as unresolved issues are likely to come back to haunt you later.

Maximising business value

Peter says: The first thing you need to do is work out whether you have a business or just a job. MoneyIf the business is entirely dependent on a skill only you can perform or some knowledge that is locked in your head, then you have some serious work to do to create a business you can pass on. This part of the succession programme is maximising business value by being ‘better and different’ and creating the ‘money making machine’ that works without you, the business founder or owner. This part of the succession programme can have a dramatic impact on business profitability and sale value.

Caroline says: I’d echo Peter’s view that it’s important to get the business into as good a shape as possible and would add that good leadership is essential here. Previous articles on leadership may give you a way to think about this. If you’re a family business, last month’s blog on the six pitfalls of family business leadership may also give you some food for thought.

Selecting and developing successors

Peter says: This involves creating a ‘talent pool’ not just the selection of one or two people as successors but creating strategic and operational frameworks where the entire management team can be empowered to ‘be all that they can be’ through personal accountability and specific mentoring and support to deliver strategic business goals. This process linked with the creation of a meritocracy where appraisal, recognition and reward processes that are aligned and send consistent messages that support the succession process. Through this process there are often surprises and worthy successors become evident.

Caroline says:  There is so much I could say here as selecting and developing leaders is my bread and butter. SuccessorBut some top tips based on experience are:
• Start thinking about it much earlier than you think you need to. One of the most successful family business transitions I’ve been involved with took 5 years.
• Don’t be too quick to choose definite successors. Let the situation evolve. Try people out in different roles to see if what suits them.
• Don’t pick a clone of yourself – the business may need a different type of leadership in the future. What made you successful up to now may not keep the organisation successful as it faces changes in technology, markets, political landscape and so on.
• Spend as much time preparing yourself as preparing your successors. It’s important to invest time and resources in developing the next generation but what about you? You face just as big a change as the people taking over from you, perhaps even bigger. For some business owners, there can be a loss of identity when they give up the role they’ve had for so long. Think about how you’ll adapt, not just how you’ll spend your time. This is particularly important if you intend staying involved with the business, e.g. as chairman. If you haven’t prepared yourself, then letting go of power can be quite uncomfortable, and you may be tempted to meddle.

Legal, technical and business framework

Peter says: These are all elements of the fourth concentric circle and are an essential element of the completed succession envelope. These include the need for wills, trusts, shareholders agreements, tax and financial advice. These all need to be tackled as one coherent solution and each expert must be facilitated to ensure maximum benefit.

Caroline says: Obviously the legal and technical stuff is way outside my area of expertise, though I have plenty of people in my network who can advise. What I will say is that this is another area to be careful to get right and to be transparent about. Perceived unfairness in this area can lead to grudges, mistrust and years of festering resentment, particularly in family businesses. It’s all too easy to spark the “you were always the favourite child/my bike was second hand, yours was new” type arguments.

Exit options

Peter says: The default position in succession planning is to plan for a trade sale of the business even when you are planning for family succession or, for example, a management buy-out. ExitFinal values will differ dependent upon the selected exit option. A rule of thumb for business sale values are detailed below:

100% value from trade sale
90% value from a Management Buy-Out (MBO)
80% value from an Employee Buy-Out (EBO)

Caroline says:  I confess I was surprised by this being part of Peter’s model because it’s often the last resort option that no one wants to contemplate. But I can see the sense in it as it stops people getting complacent. It’s like having a house that’s always in tip top condition because you could put it on the market tomorrow and it would look great. And you never know what might happen that means that you do need to sell after all.

If you’d like to talk about the process side of succession planning, contact Peter: peter@williambattle.com
I’d be very happy to talk to you about the people side of things: caroline@carolinegourlay.co.uk

If I didn’t send you this blog directly but you would like to sign up to receive these random psychological musings on a regular basis, please register here. Thanks for reading.

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Photo credits

 

ajc1

dressy-doll

 Chris Griffith

 

 

 

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