Should You Plan Your Succession or Your Business Continuity?

You well know that running a successful business is more than just meeting the requirements of the moment and the coming year. You have to plan for its long term success. This includes passing or selling your business to an appropriate  individual when you are gone.

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The average age of business owners increases year after year, approaching the traditional age of retirement. From the demographics, we could have  expected a wave of business selling, but  merger-and-acquisition activity has remained relatively flat for years. Surveys still find the overwhelming majority of business owners do not have succession plan (and aren’t taking the  steps to create one). Why? Most business owners reaching the retirement age are fit, alert and financially better off staying in their business than selling them . Many find their work so  personally fulfilling they wouldn’t want to leave it anyway. That’s especially true if the business may be adjusted to better accommodate their later years’ lifestyle preferences.

So while succession planning may remain relevant for family businesses  that wish to pursue such a strategy and are prepared to execute it, most business owners  need support for exit and  continuity planning, not succession planning.

A 2006 white paper  by professors from Stanford, Insead and Columbia suggests that in the year after an emergency succession, companies suffer an 18 per cent decline in operating  profitability, as well as seeing hits to asset growth and sales growth. In some cases, where an autocratic leader has held the company together, using fair means or foul, his or her departure can precipitate corporate collapse – the extreme case in point being his/her death. The death of Total’s chief executive Christophe de Margerie in a plane crash Monday 21/10/2014, despite having in place a succession plan, plunged the French oil group into an emotional, logistical and governance nightmare. Even if you have in place a succession plan when sudden deaths occur at the C positions level you will realize that you are badly prepared for this type of emergency.

75% of S&P 500 companies surveyed in 2011 had succession plans in place, only 83 per cent of those had as part of the plan an emergency succession section.

If you are like most of the business owners that do not wish to retire soon you still need to ask yourself one of the most important questions when developing your business continuity and /or emergency disaster recovery plan , “Who takes over if you’re not available?”

Business continuity planning is defined as a professional, written plan designed to build on top of an existing business and to seamlessly transition ownership and leadership

Business continuity planning is a unique area of expertise, so successful business owners do not always fully understand what should be done about it. You should appreciate that:

  • Business continuity planning is not only for your good and it is not your retirement plan. Of course you need to look for your own good, but more importantly to the good of the business, your clients and staff. While retirement planning is about your personal interests, continuity planning is geared toward the good of the business and its success.
  • Business continuity planning is not only about you transitioning out of your business, which as we saw earlier can be sometime off in the future. Effective continuity planning actually sets up ongoing policies, practices, systems which position the business to make a smooth transition when the time is right.
  • If you are looking at selling your business, you must realise that selling takes a lot of work and that if you try guessing the value of your business you may be well off the price you will be able to get for it. In reality, selling your business is a process that will make sure that the needs of your business’ stakeholders are met. This means a lot more than making sure they are referred to a new business owner to meet their requirements. You should appraise your business value accurately so that you have a clear idea of the value of the business when it comes time to sell.
  • A true business continuity plan is an internal transition plan to the next generation of employees and owners which occurs gradually over time and preserves the integrity of the business as is.

You should not hesitate to work with experienced advisors in business continuity planning. Doing so ensures that your transition out of the business, due to a sudden death or as planned,  will go smoothly and that it will be for the benefit of the business, your clients, your family and yourself. James Joyce says: “I am tomorrow, or some future day, what I establish today. I am today what I established yesterday or some previous day.”

Business continuity is not episodic. It should be treated as a continuous practice whereby you and your team are prepared for transitions at any time, and at multiple levels. This should include ownership, C-suite positions and other critical positions. A good business continuity plan should address your death, disability or retirement of the business, as well as the sale of your interests. Further, a great plan will ensure that all objectives are accomplished — that the most effective business transfer is realised, and that funds will be available to provide maximum financial flexibility

With adequate planning, your establishment can outlive you tomorrow, take the Sellability Score Test now! To find out what you would need to tweak to transfer your business when you’re ready. It will simply be the result of what you manage to establish today.

If you have a question or disagree with me please leave a comment on this blog.  I will respond promptly so we can have a fruitful discussion

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If you would want to know more on how to transition out of your business and would want to explore what you should do please do not hesitate to call Jean-Bertrand de Lartigue on +44 1656 766 363 or e- mail him at JB@macint.co.uk or visit our website www.exit-planning.co.uk

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