Successful succession planning: Print 21 magazine article

The secret to a good succession is all in the planning. If your plan resembles that of the British monarchy – leave everything to the first-born and the devil take the hindmost – then be warned that the list of possible outcomes range from the fabulously successful House of Windsor to that of a rice farmer called Mick living in Jerilderie. Andy McCourt examines the options that are available beyond the bloodlines, pure or otherwise.

Think succession and the throne of England springs to mind: 800-odd years of carefully planned, sometimes deviously manipulated succession, full of plot, intrigue, wars, murders, usurpation, rebellion and execution. Nevertheless, Britain has sustained one of the longest lines of monarchial succession in recorded history through planning and determination. Even Oliver Cromwell couldn't staunch the power of regal succession, despite his regicidal (and genocidal) actions. After Cromwell's death, Charles II was restored to the throne and Cromwell's body dug up and 'posthumously executed' by decapitation – just to teach him a lesson.

Today, there are at least 1,500 individuals in sequential line to the British throne with a crimson thread of succession weaving its way across England, Scotland, Germany, Russia, Norway, Denmark ... and Australia.

Australia? Yes, Mick Hastings (66) of Jerilderie, NSW was tracked down by a BBC film crew in 2004 and informed he could be the rightful monarch of England because his bloodline went all the way back to a George Plantagenet in the 15th century, and the succession had gone off the rails on account of an illegitimate King – Edward IV. Some of us may remember the ditty: "God bless the bastard King of England" – probably about Eddie. Mick is in fact an Earl so he knows he's connected but since moving to Australia at age 18, he's dropped the Michael Abney-Hastings, 14th Earl of Loudoun in favour of Mick Hastings, rice farmer. There's no chance he's headed for Buckingham Palace though – he's a republican.

So much for monarchial succession and reluctant rice-farmer Kings from Jerilderie. Let's look at the US Presidency. John F Kennedy established a deep Continuity of Government structure during the Cold War, in the event of catastrophic destruction of Washington. There are not only hundreds of Presidential successors but a complete shadow administration located underground at Mount Weather, Virginia, plus two other shadow administrations at locations unknown. Possibly Jerilderie?

The message is that succession is taken very seriously by the establishment and long-term plans are put in place and regularly updated.

Why should printing businesses be any different?

It's all in the risk
Risk management is practiced by all businesses. You decide on credit limits, OH&S issues, legal liability and make judgment calls or insure accordingly. A sub-category of risk management is business continuity which is basically having a contingency plan in place in the event of fire, strike, loss of key accounts, incapacitation of a key manager and so on.

The number one reason for having succession plans is business continuity. This was made clear in a recent PIAA survey where over 70 percent of respondents gave this as the main motivator. The show must go on and there are a number of ways to make sure it does.

Selling to a private equity-backed consortium is not necessarily one of them.

The past three years have seen a number of renowned printers in Australia and New Zealand sell to PE capital-backed groups, only to be closed down and broken up. The latest and perhaps most surprising was Agency Printing incorporating Graphic World, where two once-powerful Sydney printing companies, acquired by Geon Group, have been annihilated and absorbed into the conglomerate's main body. This may be inevitable and sound financial management by the backers but if continuity of 20 or 30 years' worth of brand-building and staff loyalty is your aim, there are no guarantees whatsoever where PE money is concerned. After selling Agency, co-owner Don Elliot was quoted as saying: "This was the answer to the succession issue." Unfortunately it wasn't.

There are many sources of succession opportunities and these include:
* Progeny: sons, daughters
* Relatives: brothers, sisters, surviving spouse etc
* Staff: via MBOs and leveraged buy-ins/outs
* Competitors: via mergers
* Customers: larger accounts who may miss your service
* Private equity partners & franchisors
* Business migrants seeking lifestyle business
* Sea-changers, career-changers, entrepreneurs
* Without a succession plan, none of the above

So, it's all in the planning, but what is the best time to plan? My view is that succession planning should be a priority from the day you start, buy or acquire a business. Make it as much a part of your business continuity strategy as sales calls and production upgrades. In the early stages it can be 'what if?' x, y or z happens, who will run and own the business? Certainly a succession plan should be well in place ten years ahead of an envisaged exit from the trade. I have seen too many good printers leave it until it's too late and their only option is to close up shop and sell their equipment and whatever remains of their customer list.

Selling succession
Whatever form of succession is likely for you, it needs to be sold like any proposition. The following is a real case history, quite recent, in twelve stages:

1. Company 'X', a very successful operation owned by two blood-related families.
2. $10 million approx turnover, 40 staff, profitable, owned for 30 years
3. No succession strategy until recently
4. Sons and daughters not interested in the business
5. Key management staff interested but reluctant to borrow, mortgage etc
6. Business quietly listed through a broker
7. Key staff found out and decamped to direct competitor
8. Business goes into damage control, cost-cutting
9. Health issues develop; sick partner will accept 'any offer'
10. Competitors circling to buy business at knock-down price
11. Business becoming a liability rather than an asset
12. Currently considering keeping control until 'economy improves'.

Years ago, this business should have implemented a succession plan, probably involving the gradual buy-in of key younger management and once less than 50 percent of family-control was reached, letting go of the day-to-day operation to take dividends from profits and management fees from advising, liaising with key long-term accounts and so forth. It's the Colonel Sanders (KFC) option; eventually you become a figurehead and little else.

Staff succession needs to be sold as a benefit to those interested and capable. The great Australian dream of 'sacking the boss' and being independent is a good sales point. Taxation advantages, equity, dividends, business travel and social citizenship are a few others. Greed is a negative but financial independence is a positive.

Equally, if the succession is likely to be from outside the firm, the concept needs to be packaged and sold. There is no divine right to a succession and more often than not, what you think your business and assets are worth is heavily discounted at the valuation stage - by anything up to 50 percent with 70 percent being typical.

Finance institutions lend on valuations and valuers can be sued for the difference if the business is later sold at a loss, hence valuations today are more realistic than they once might have been.

Show and sell
If you 'run the business into the ground' that's probably where it will end up. Re-investing is a constant and ROI cycles are getting shorter and shorter. People do not pay money for 'potential'; if the potential is there, why hasn't the seller capitalised on it? For this reason it is wise to be ready for sale or succession with an up-to-date capital asset list, excellent IT infrastructure, a website (a must) and MIS systems that are relevant to the 21st century. MIS is vital as it quickly identifies the health of the business and provides a great 'show and tell' to any prospective successor.

A foot in the digital, on-demand, short run, variable print sector would also look good. Post-2000 multi-colour presses will attract more attention as virtually all manufacturers changed their approach at drupa 2000 to embrace JDF, CIP3/4 and NT server-based system control. CTP, of course, is a given if you are expecting a decent price.

So keep investing wisely in plant and equipment – the leases will be taken over by new owners anyway and any guarantees you have signed can be assigned. If you are showing profits on the books, two years average is about the best you can expect to recoup in today's climate but this goodwill will be heavily marked down for tax efficiency, with stock and assets maybe valued higher.

And never be in a forced sale situation. Buyers can smell desperation. The longer you plan for succession, the more likely it is to be successful.

The succession jungle is getting overcrowded and more dangerous and, in many cases, print businesses will just close up and sell off the assets. If economic times don't suit and your business is cash-positive, why not consider keeping it as a cash cow and working up that carefully-crafted succession plan? It should be as good as, or better than, the business plan you had when you first started.