Tips for successful succession roadmap planning

Tips for successful succession roadmap planning

By: Damien
24 May, 2022
For any business owner there will be a time to leave the company, but how you exit and what happens to the business afterwards needs to be carefully planned if all parties are going to get the best value from it.

When you are running a business, the future is always in mind. Whether it is looking at developing the next product, selling into new areas or countries or diversifying into additional markets, all good businesses have a plan for where they want to be in the coming years. Understandably, these priorities take most of a business owner’s time and thoughts, especially in smaller businesses, but consideration should also be given to how to exit a business and what happens to it afterwards.

Business exits can take many forms. Some entrepreneurs run a business until they retire before handing the reigns on, while others have a plan to grow a business to a certain point and then exit, perhaps just a few years after it was formed. But whatever the reason to exit, it needs to be carefully planned if it is to realise the desired value and leave the business in safe hands going forward. This article provides some handy pointers.

Choose the form of exit



There are various ways that an owner can exit a business, including generational succession, a management buy-out, IPO – a listing on a stock market – or a sale to external parties. Each type of exit has its own advantages and disadvantages, which will need to be considered to ensure you make the right exit for your needs.

Many entrepreneurs that have set up their own business dream of handing it onto their children when they retire. But it isn’t as simple as just handing over the keys to the office to them, there are plenty of legal considerations that have to be made in advance.

Likewise, selling the business to the existing management team in a management buy-out has the advantage that it maintains continuity, and it is handed to people who know how it works, its markets and its customers.

An IPO – initial public offering – on a stock exchange can raise a lot of money as you sell your shares in the company. It can also mean you retain a stake in the business, should you wish to. But it does leave the company beholden to shareholders, and the vagaries of the stock market – as the adverts always say, investments can go down as well as up.



Selling to external parties, such as another business, is another common way to exit a business. This often has the advantage of delivering a good price, and the business knows the sector and, in some cases, can put more resources into the business to enable it to grow.

But whichever exit method is chosen needs to be considered carefully first and then extensively planned to ensure it delivers the value you want it to.

Put plans on paper



It is reckoned that only about a fifth of Irish businesses have a formal succession plan. Of course, many business owners have plans for their exit from a business, but that may be only in their head, or just talked about – after all, it could be something that happens many years in the future. But if those plans are to have the best chance of coming to fruition, they need to be on paper so all relevant parties know about them – including accountants and lawyers.

The plan should address all the major issues that are important to you, such as the long-term future of the business, the value you are looking to receive for the business and whether you intend to retain any stake in the business.

Full or partial exit



Retaining a stake or not in the business is a key tenet of any succession roadmap planning. It can smooth a transition if you retain a seat on the board of directors and provide some consultancy – especially in small and/or family-run businesses.

Likewise, if you are selling to another business, do you want to stay in place for a transitional period – anything from one to three years is common – or exit completely when the deal completes? Staying on can help with the post-deal transition, but some entrepreneurs don’t like going back to being employees again after running their own business – and this can lead to tensions down the line that can affect both businesses.

This is why a full exit from the business can be preferable. You life goals will also play a part, especially if the exit is motivated by a desire to retire.

Talk to others



Succession roadmap planning should not be done in isolation. If the company has a board of directors, they can offer opinions on how the succession should be undertaken and can help put the roadmap together.

Likewise, if you are planning to pass the business onto a family member or members, or the existing management team, involve them at the earliest moment to enable them to prepare and have the best chance to successfully take over the reigns when you do step down.

Long-term vision



Indeed, succession planning is best viewed as a long-term strategy, rather than something done in haste when you are actively seeking to step down.

A long-term exit strategy – looking at anything from five to 15 years in the future – can ensure that everything is in place when you do leave, so the transition is as smooth as possible for staff and customers. In a small business, where a family member or existing manager is lined up to take over, if they know your exit plan they can have the time to be trained and mentored – possibly by you – in how the business runs, or gain relevant qualifications, so that they do not face a steep learning curve when you do exit, which can harm the business.

There also has to be realism in the plan: know what a good market value would be for the business if it is to be sold, and what appetite there is out there from other businesses to do deals.

Looking in-depth at the business when planning for succession could also identify where there are gaps in experience in the management team, and then suitable people can be recruited to fill that gap.

Regularly revisit the plan



A succession roadmap should not be a one-off planning event, rather a continuous process. It should be regularly reviewed and adjusted and improved as necessary as the business develops and economic circumstances change. Your circumstances may also change – illness, changing life goals, for instance – which can also necessitate the revision of a plan.

Ensuring the succession plan remains up to date will mean that it has the greatest chance of success for everyone.

Get advice



But whatever your ideas for succession roadmap planning, it is crucial to get advice before pen is put to paper. The financial aspects of any succession deal can become difficult, so it is always worth seeking specialist advice from those with specialist knowledge of succession planning in Ireland – including its legal structure, history and local norms.

Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects of succession planning as well as anything from setting up a company and ensuring it is as tax efficient as possible to providing diligence services as part of an M&A deal or funding round in the sector. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset.
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