How to leave your business in good hands
You need to plan your exit carefully, says Darren Shirlaw
Many business owners say to me: “I’m going to exit in five years.” Yet when I ask them a year later, they say the same thing. Every owner should take some time to understand what they want to get out of the business, as well as when and how to make an exit.
There are four elements to a succession plan, and we’ve covered three of the areas in detail over recent months:
• Building value – increasing the traditional multiples by which your business is valued. There are seven layers a potential purchaser can value, from buying your client list, to having a business set up for profitable growth that is scalable.
• Timing – your business will pass through a number of stages dictated by your energy levels. There’ll be good growth periods and times when your business seems to stagnate no matter how hard you work. This is when you need to reassess its structure and ensure maximum use of resources.
• Independence – employees should be aware of their function and responsibilities. You need to plan to remove yourself from daily admin tasks and concentrate on strategic issues that will drive the business forward. And for planning your exit, you need to be working towards a position where your departure will not damage the business.
• Priorities – understanding what you want to get out of the business when you exit.
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With respect to this fourth area, there are three main options: income, equity or control – or a combination of these. You may want to leave the business as the senior executive, but still take out an income, or your intention could be to sell it on to your own staff or an outside interest and walk away. Alternatively, you may want to sell your equity, but retain control. Each is valid, but all require careful planning.
A good way to start this exercise is to prioritise the order of your requirements.
It might be this:
Or any other combination that meets your needs. But by setting out your priorities, you can begin to consider who may be able to succeed you or be interested in taking some or all of your equity.
If your successor is likely to come from within your business, you need to consider what their priority list will look like. If someone has a young family, income is likely to be key, as opposed to buying equity.
Having decided on your priority list and identified people interested in your proposition, you will open negotiations. If both parties can be open about comparing their needs, you have the basis for recognising early on if a deal is possible.
If you have set up the business from scratch, it is easy to become emotional when discussing its future. Formally setting out priorities makes negotiations less personal and easier to discuss.
Whatever route is right for you, time and planning is necessary if you are to achieve the outcome you want, at a price you want. Don’t let a lack of strategic planning now hinder your future retirement or ability to move on when you want to, with maximum benefits.