Building a business from the ground up is hard work. It can take up your weekends and evenings and monopolise your thoughts. But when you’ve finally reached a point where you can sit back and enjoy what you’ve built, it’s always worth it.
To make sure you’re able to do this, and to ensure that your business continues providing the same great value after you’re gone, you need a succession plan.
Not sure what a succession plan entails or if your business needs one? We spoke to Andrew Ross, Director and Advisor at Advantage Business to get the answers.
Why is succession planning essential?
No matter how you plan on leaving your business – whether you’re seeing it through to retirement, or taking on a new adventure – every business owner will eventually have to move on. Without a plan, your entire organisation could fall over when you leave. Succession planning is the solution to that problem.
“The current owner could be considered a custodian of a business. The aim is usually to set up a business that is sustainable in the long-term to pass on to a family or a loyal staff member. Hopefully passing it on in a healthier state than that in which it was received.” said Andrew.
Andrew also makes the point that if you don’t plan and your business fails; it will affect several stakeholders, not just you.
“A business not only provides a service for customers but employment for the staff. Smaller businesses have three main stakeholders, the owner(s), customers and staff. Larger businesses will have secondary external factors on which they impact indirectly.”
What are the benefits of succession planning for a business?
Succession planning has several key benefits for your business. Some of the biggest ones include:
- Creating a structure for training and development
- Helping identify talent for succession
- Providing clear objectives and goals for your business
- Protecting business owner equity and stakeholder interests
- Giving staff a long-term career path.
Andrew believes that having a plan in place is absolutely essential no matter what you want to do with your business.
“Having any type of plan in place is a huge benefit to a business. Ninety per cent of the time clients want to sell, with no plan. This can be detrimental to all three stakeholders. What’s more, people need goals and milestones to measure their achievements. A plan gives a focus for an outlook to the future. Staff will have greater fulfilment if they’re achieving milestones.”
By empowering and enabling your staff you also protect your own investment as your business is only worth as much as the people working in it.
Is succession planning worth the effort?
A lot of businesses wonder if they need a succession plan, but the answer should always be a resounding YES. Every business needs a plan in order to succeed at each stage of its life, according to Andrew:
“Planning is always vitally important to any business. The process provides benefits to the business as a whole, even if the plan isn’t executed. Maximising profit, putting together appraisals for staff for example – these are things that need to be put in place anyway.”
Andrew has helped many businesses struggling to succeed without a plan in place. One particular business owner wanted to sell his organisation in 18 months, but without a plan, his business was floundering. Andrew and the owner worked on profitability and gaining an understanding of the organisation’s weak spots in order to bring the business back to optimal performance. In the end, a solid succession plan was put in place and within a couple of years, the business will be ready to sell at a profit.
Andrew reckons the process can be tough, but it’s always worth it:
“Succession planning gave the owner options other than just closing the door. Part of the work involved included the tough process of showing the owner the reality of what the business was worth. Having verified my findings, the owner retained me to help get the business back to what he thought it should be worth.”
Succession planning is a must-have for every business. Not only does it set you up to leave, but it also ensures a career path for staff and helps the organisation succeed after you’re gone. If you need a hand putting your plan together, don’t be afraid to take advantage of our experience. Have a no obligations chat to one of our friendly, local advisors today about how succession planning can work for you.
