You’ve spent years building up a business that you’re proud of and it’s now time to enjoy life outside of running the business.
There are countless different ways to get out of your business, including:
1. Straight Exit
Exit your business via a business sale.
2. Merger / Acquisition
Merge or acquire another business with management capability that enables you to exit the business' day-to-day running.
3. A Transitional Ownership Succession Plan
Bring in new owner(s) and over time transition your ownership to them as you gradually exit the business.
4. Family Business Succession Plan
Ownership and/or responsibility transition between different generations in a family business.
Our Team at Velocite has successfully facilitated the development and execution of several Transitional Ownership Succession Plans. This blog will share the answers to the most common questions we’re asked and a simple prompt list to get you started.
Our starting point will always be understanding what is important to you and what you want to achieve once you exit your business. We often refer to one of the key concepts in author Martin Hawes book, Twenty Good Summers. As the book title suggests, we will ask you how old you are now (sorry) and therefore, how old you will be in 20 years’ time (sorry, again). We start here because what you can achieve when you’re 75 is going to look different from what you can achieve when you’re 55.
Making a list and prioritising those things that you’d like to tick off personally is an important part of succession planning. We will help you align your succession plan with your personal goals.
The 4 most common questions we’re asked
1. When is the right time to start the succession planning process?
We’ve worked with business owners that have begun their succession planning in their 40s right through to those in their mid-60s, it is never too early to start the planning process.
Begin with what is important to you. If there is something that you want to achieve that is time-sensitive, work your timing around that. We will use the Velocite Business Purpose model to help you to identify what is important to you and the key enablers that will get you there.
2. How do I start the succession planning process?
The starting point will be determining the best approach for you and what you’re trying to achieve through succession planning. For example:
Example One
if you are wanting to gradually step back from the business over a longer timeframe, say 5+ years the approach taken may look different to,
Example Two
someone else wanting a relatively short transition out of the business over 1 to 2 years, this will look different again to,
Example Three
a family business generational transition, one of the children taking greater responsibility in the business running the day-to-day operations while the parents retain ownership to receive dividends.
In any of the examples above, it is important to define the role that you want to play in your business and the timeframes that you’re working towards.
3. What are my options?
Each business’ succession plan is unique and should be driven by the outcomes you’re wanting to achieve. A couple of examples we’re familiar with include:
Example One
A business that is currently owned by two parties where one of the owners wants to transition out of the CEO role over 5+ years, the other owner is currently in an Operations Manager role. In this case, the business is bringing in shareholders (as minority shareholders), both a retention and succession planning tool. The new shareholders will gradually take on more management responsibility over a period of time as the current majority shareholder transitions their shareholding to the incoming shareholders and steps back from the day-to-day running of the business.
Example Two
A business owner that is looking to exit their day-to-day role as CEO within a shorter timeframe of 1 to 2 years. In this case, an existing team member has been promoted into the CEO role along with taking an ownership stake in the business. Under this scenario, the current business owner was able to significantly reduce their role in the business within a short timeframe, while still retaining the majority shareholding in the business.
Your succession plan may be someone from within your business or external to your business. There are a number of people looking to buy into an established business with a well-managed handover period from the current owner. Keep an open mind to the different possibilities.
4. I have someone that I think would be ideal as a succession plan, when and how do I start the conversation with them?
Before you start the conversation, ensure that you have your succession plan in place and have thought through your answers to the likely questions that you’re going to be asked by an incoming shareholder, such as:
When will the transition happen?
What is the process? What do I need to do?
What will my role in the business be, what will your role be?
How much do I need to invest?
What shareholding will I have?
How will decisions be made going forward?
Having a plan in place and having pre-thought-of answers to these types of questions will help to avoid frustration for both parties.
The other critical thing is to ensure that you have carefully thought through who you are approaching to bring into your business. It is a big decision. We have developed a simple framework to help evaluate potential incoming shareholders to help with this decision.
Make a start on your succession plan with our Pre-Succession Planning Prompts Toolkit or get in touch with our team to have a ‘no obligations’ coffee meeting by requesting a coffee catch-up with Loren!