Succession planning for small businesses – Mark McEwan on business

Many small to medium business owners spend years nurturing their business spending excessive hours at the office or factory and mortgaging their home to secure the company’s expansion. For these people, the boundary between the business and themselves as the business operator is almost non-existent – and therein lays the problem.
When the time arrives for the proprietor to either look towards semi-retirement or to the sale of the business, that nexus becomes a prohibitive factor.

Looking towards semi- retirement

Many proprietors still take satisfaction from their involvement in their business, but would like more time to either spend with their family or to reducing their golf handicap. Letting go is hard for many people – for some, it’s a trust factor, for others, there simply appears no-one else to hand the reins to.

Preparing the business for your retirement takes at least 18 months, and is underpinned by one main theme – restructuring to replace yourself.
The process begins with an assessment of the company’s asset base – and this doesn’t just refer to plant and equipment. What will ensure a smooth transition of your business long after you’ve strolled down the fairway is an effective management structure that has both the responsibility and the authority to perform.

The company must re-assess job roles and the skill base that would compliment that position. If promoting from within the organisation, you must ensure that each selected employee is the best candidate for that role, rather than promoting someone because it seemed the easy decision to make. Further, funds and time must be allocated to training – whether it be on-the-job training, a short course in management, or a postgraduate degree, the new team must have a knowledge base to draw from.

If the existing employee base doesn’t provide a suitable pool of candidates, it may be prudent to engage a professional firm to assess the job role, and to advertise and recruit candidates for you to select from. The key issue in the selection process is identifying a candidate that fits the culture of your organisation – either as it is now, or how you want it to become.

Selling the business

The principles for planning for semi-retirement apply just as equally to those proprietors who are planning to sell their business. For any business owner considering presenting their company to the market for sale, it is critical that the following matters be in place:

The bloodless coup

As much as it might deflate your ego, you must be able to show that severing you from the business won’t cause the business to haemorrhage. The sale price for a business will always be greater for those businesses that can truly be a going concern.

This means that you must have successfully implemented a succession plan which maps out a hierarchical chart with clear and logical flows of authority. Job specifications for each role in the company helps the prospective purchaser better understand your business.

Systems, systems and more systems

Any potential buyer would be wary of paying an above the market price for a business where all the ideas, methods and planning is stored in your mind.

Provide clear flow charts of how an order is handled, from quotation to final delivery. This in itself may identify some bottlenecks that you can fix prior to the sale, and so increase the profitable and therefore sale price of the business.

Importantly, have a clear understanding of who your largest clients are, what industry they represent and what areas of expansion exist for the potential buyer. If you can’t explain where your revenue comes from and where your best margins exist, you’ll be hard pressed to convince any buyer that your business operates with any clear direction.

Tidy Up!

To achieve the best price, a business, whether it’s in the service industry, retail or manufacturing, must present as both professional and efficient. So, start shredding those old files and dumping or at least heavily discounting all that obsolete stock.

But don’t limit the cleaning to the office or factory – start cleaning up your accounts. This means having a clear and accurate asset registry, up-to-date debtor and creditor listings, and projected budgets for the coming years.

Overview

The purchase price you receive for your business may be your last hurrah! from working life, or it may be the start of some new venture. Wherever you are in the working life cycle, your future will be enhanced by a well articulated plan.

Clear systems and an empowered management team - the basis for your company’s future – with or without you.

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Mark McEwan, a member of the Australian Institute of Company Directors, manages successful companies in manufacturing and management consulting, and has successfully qualified in the following Monash University degrees: Graduate Diploma of Business (Management), Master of Management (Human Resource Management) and Juris Doctor (Law).

Mark’s company, Visual Response, can provide professional assistance to business owners who wish to undertake succession planning and or to prepare their business for sale and he can be contacted on Mark

Phone: 0418 4242 31.