Would your business survive without you?
Four reasons to implement a Transition plan
Whether or not you’re ready to sell your business. The most important next step you need to take is preparing your business for a life after you.
Why? It’s simple;
“Owner-led businesses are worth less than a comparative business with a pre-existing management team”.
So here’s 4 reasons why you need to start a transition plan today:
You want to avoid an earn-out and maximise the Day 1 exit-value of your business
For most business owners, a sale is more of an emotional process than a rational one. The energy and stress one goes through is huge and rightly so. Their business is a second family and the representation of years if not decades of hard work and sacrifice.
Whether you like to admit it or not, you’ve been the boss and answered to no one for most of your career. Having to stay on and take orders from someone else, let alone an institutional buyer is a proposition completely alien and unappealing to most. If it isn’t at first, you’ll soon find out.
Most owners want a clean exit without the lingering ‘what if’s’ of an earn-out. Therefore, having an experienced management team in place that already has day to day control of the business and already treats you as just a majority shareholder goes a long way to minimising the need or conditions of an earn-out as you no longer become a key-man risk to the future success of the business.
It gives you more free time
Whilst it may be hard to step away, many people sell their business to experience more free time with their family, to look after grandkids or to race other semi-retired 50 year olds around Silverstone. Whatever the reason is, we all have one!
So why not start the process? Invest the time and money to hire well as it’ll pay you back leaps and bounds financially and emotionally when it comes to sell.
It minimises the impact of a sale on your staff
If you’ve been through it before you’ll know that the process of selling your business becomes a second job.
The questions of; who do you trust within the business to tell, how do you provide security beyond an exit or even how do you incentivise your staff to maximise your Enterprise Value when there’s so much uncertainty around their future and value?
By being transparent and providing an opportunity for existing or future employees you’re able to take some of the weight off your shoulders. Certainly institutional buyers will be looking at your organisational structure to see who’s fit and able to run your team in the future. So why not be ahead of the curve and start that now? It minimises their risk and mitigates any concerns about paying a premium.
You may well be the problem
At Richardson Capital Advisory we work closely with Family and Entrepreneur-owned businesses and quite often we see remarkable businesses that have been built from the ground up by one pivotal leader.
The effort, knowledge and time put into the business is undeniable, however, more often than not we see businesses outgrow their owners. When times are good this is rarely a problem. But, as we’re seeing now with margin pressures and costs of capital increasing this can quickly become a tangible problem. Why?
Owner/Family-led UK SME’s typically display two key characteristics 1) hierarchical organisational structures and 2) adequate accounting but weak finance functions.
What does this mean?
1) all key decisions go through one pivotal leader which limits the responsibility and potential for other management to step-up and 2) your business becomes “reactive not proactive”.
It’s often said that businesses need different leaders at different stages of a business’ growth. Ask yourself, how are you stopping your business from taking the next step? Are you providing your business with the time, momentum and energy needed? Have you planned who your next leader is and why they aren’t being prepared in the business now?