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Three of the keys to effective business succession

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Three of the keys to effective business succession

By , March 20, 2024
darryl

We’re a passionate bunch, aren’t we! Of course, I am talking about SME owners who live and breathe their business. Whilst this level of passion is necessary to enable us to push through the many difficult times that we have as business owners, it can cause blindness, particularly when it comes to planning our business succession.

Many business owners are inclined to leave planning to the last minute and as a result, don’t have enough time to prepare it to be attractive to be acquired and end up being unable to sell their business.

About You

The Owners are Ready for exit

Owners who are ready to exit have a vision of what they want to do after leaving the business. They have prepared their exit plan by exploring all the possibilities and selecting the one that matched their business stage, energy level and exit timeline.

They have extracted themselves from any key day-to-day roles and responsibilities and are now operating as a chairman . The business provides them with regular reports that monitor the health of the business through key measures comparing targets and actual performance of the business.

The rest of their time with the business is spent adding value in three key areas.

Set the context

The owners need to set the context for the strategy which is driven by the vision. The vision sets the course of the business. This big picture is used to guide the directors who will devise the strategy to achieve the vision. Your role is to ensure that everyone knows and understands the vision.

Manage the energy

The owners of an SME business are like the sun in the solar system – they set the energy, the tone and the pulse and therefore the culture starts here. They communicate the values and these become the framework for people to make decisions within their role responsibilities.

Everyone is watching the directors to see how they act and how this aligns with the values that they communicate. It is a case of actions speak louder than words.

It is also useful to capture the company’s beliefs and rituals to bring the culture to life.

Most organisations are not aware that they can directly create their culture and not simply be reactive to what happens.

Coach not play

This means that the owners are not involved in any operational roles within the business. They’re not working in the business. They are running the business not running in the business.

The owners are coaching and mentoring their leadership team. They provide them with the decision-making matrix and the process they use for making decisions which are guided by their values.

 

About the business

The business is exit ready

The business has prepared itself for a successful exit by implementing a clear and effective organizational structure, documenting and training all the staff on the systems that support their work, and allowing the owners to enjoy their time off without worrying about the business.

The business has a strong team of people who are aligned with the vision and values of the business and who are in the right roles for their skills and abilities.

Functional structure

The functional structure grows with the business. It provides a framework for everyone to know what is expected of them – the scope of their role and how they are measured and rewarded. The ideal structure for an SME is one where the functions are mapped rather than a hierarchy of people. This will prevent anything from slipping through the cracks as the functions don’t change as the business grows – but the people working in these functions do. The right people are in the right roles and they are aligned to the vision and values.

Everyone is working to their roles and have an understanding of the scope and extent of their responsibilities. The decision making matrix sets clear guidelines for how far they can go and what needs to be elevated upwards. This includes who will perform a role if the primary person is away.

Scheduling systems

The business has a scheduling system that plans ahead for all the tasks, workflows, key events, training, marketing and client engagement activities. The scheduling system helps to coordinate the work and avoid omissions, delays or conflicts.

There are systems for the management team and also the operational processes that ensure that the business is run consistently, repeatability and reliable.

Everything is documented and everyone is trained in how to use the systems that relate to their jobs. The systems are followed by everyone consistently.

Performance monitoring

The business has a performance monitoring system that tracks the compliance and performance of the systems and the staff. The monitoring system provides feedback and data that help the leadership to assess the progress and performance of the business.

The processes are monitored To give confidence that everything is running as expected.

The owners use the monitoring information to keep informed about the health of the business while they’re not in the business every day. This allows them to add value by spending time building assets.

 

About the money

The numbers work

The owners think in terms of valuation growth rather than profit growth. The valuation for the business is at a level where it meets the desires of the owners. The tangible and intangible assets are documented and prepared and ready for an attractive deal to be offered.

The risks have been identified and mitigated and all the corporate governance requirements are in order.

Valuation is right

The valuation for the business exceeds the desired valuation and the freedom number for the owners.

Earnout is unlikely

The valuation can be achieved without the requirement for an earn out. The deal can be done without any contingencies or delays. The valuation is realistic and achievable.

Risks are managed

Risks and opportunities have been assessed and addressed with effective documented plans. The business is compliant and transparent.

 

Darryl Bates-Brownsword

Darryl Bates-Brownsword

CEO | Succession Plus UK

Darryl is a dynamic, driven Business Mentor and Coach with over 20 years of experience and passion for creating successful outcomes for founder-led businesses. He is a great connector, team builder, problem solver, and inspirer – showing the way through complexity to simplicity.

He has built 2 international multi-million turnover businesses; one now operating in 16 countries. His quick and analytical approach cuts through to the core issues quickly and identifying the context. He challenges the status quo and gets consistent, repeatable and reliable business results.

Originating in Australia, Darryl’s first career was as an Engineer in the Power Industry. Building businesses bought him to the UK in 2003 where he quickly developed a reputation for combining systems thinking with great creativity to get results in challenging situations.

A keen competitive cyclist, he also has a B Eng (Mech) Engineering and an MBA.