What if you woke up tomorrow and decided to just stop working? It might even be a thought that’s occurred to you on a particularly miserable Monday! But if you have dedicated yourself to building up a business, you know it’s really not as simple as leaving the doors locked and the lights off.
“Get me out of here!” is not a succession plan
All the midnight oil, effort, stress and goodwill you’ve put into building up a business is worth something, but do you even have a clear picture of how much?
The business sale decision is often a very difficult one, not only due to the nitty-gritty details of valuations on stock, plant, equipment and goodwill but also the human factor.
Unless you are a sole trader, there are your staff to consider as well as your clients or customers. How much are your clients or customers worth in your business sale? And what arrangements can you make to ensure your staff are not thrown out with a pink slip and a redundancy cheque?
None of this is easy even when things are going well, and they are even less easy if times are tough and winding up the business seems the only logical thing to do.
What you need is an exit strategy, and ideally, a succession plan is a fundamental part of it.
Succession planning is about people
Good succession planning involves not only the financial side of things it also incorporates thinking about the people in your organisation and its customer base. It’s not only smart from a commercial point of view there is an added benefit in terms of your peace of mind.
It is relevant whether you plan to hand over the reins to someone else or sell the business.
If you plan to hand over control, you will need to think about whether it will be best to raise someone already in the company, or recruit someone new. You’ll need to think about what management processes and company procedures will need to be documented, whether all your systems are shipshape enough for a new captain to take the helm, and whether all the businesses financial affairs are in order.
Being prepared for a business sale is key to your succession plan
If you plan to sell the business, it is vital to be organised. No potential buyer wants to be presented with a pile of files or shoeboxes of receipts along with the immortal words “ask Bob about that, he’ll know where everything is”.
It’s a lot to take on, which is where the right business accounting partner is invaluable. They can step you through the entire process, asking the right questions and ensuring the answers are accurate.
You need to have a clear picture of exactly where your business is currently, and sound plans for where it is headed, so your successor can take over with minimal disruption for staff and customers.
Stay on top of your key documents
Ideally, you have all the important details documented around suppliers, payroll, finances, leases, service providers and company procedures. While it is common for a new manager or owner to want to change things up a little and make their own mark, by ensuring they have the clearest possible picture of everything you are giving them a better start.
Ask the right questions about your succession plan
If you’re planning to sell, the sale of your business will likely be the most important deal of your life. It’s a major milestone that defines the end of an era for your business, and the beginning of a new chapter for your life.
So, it’s crucial that you understand exactly what you want to achieve with your transaction from both a personal and financial point of view.
Part of the way we help people prepare for their next chapter is by preparing a “Sale Ready File” for their business. Pulling this together means asking quite detailed questions and gathering a wide variety of paperwork, but there are a few basic things we ask right at the start like:
- How much do you think your business is worth?
- What are its assets?
- Have those assets ever been valued by someone with valuation experience?
- How much do you want to live on in your retirement?
- How much of your retirement income do you hope to come from your business sale?
- When do you want to retire?
This gives us somewhere to start - because the first step of any journey is actually knowing where you are trying to go!
You can read more about how to develop an exit strategy and succession planning, and some Must Do Now things that will help you start planning today for life after business in our free eBook Your Money, Your Choice – Create Progress.