Succession planning is an important step to take to ensure the leadership continuity of a business.
A time will come when a founder of a privately-owned company reaches a crossroads in their career and faces several difficult decisions about their future.
Whether a founder continues to lead the business, sells the business, or retires, appoints a management team, and retains a chairperson position on the board, depends on their aims and what they want to extract from the company.
In our latest blog, we unpack how founders can make the most of their hard work and consolidate the organisation’s reputation and legacy.
Estimated reading time 4:30
Succession planning is the process of transitioning the management of the business to facilitate the change of ownership to family members or external investors (e.g. private equity). In doing this, owners give themselves more options and can get a better value for their shares.
Often owners leave it too late; retirement or unforeseen circumstances such as ill-health may preclude them from continuing to lead the business.
Related Article | How to value your technology business
In our experience, the owner is generally the person who is most familiar with the business’ core values and principles. To ensure the continuity of these attitudes and behaviours, a multi-year plan must be set in motion to achieve a smooth succession.
It may not be easy to hand over the running of the business to a new leader or team. It might sound daunting initially, but the succession process does not have to be that much of an administrative burden.
If a founder decides to sell the business, they must first plan the succession, even before the nature of a sale has been determined.
Related Article | How to tell if your business is ready for an exit
Once a founder has decided to sell the business and established the succession process, there are several exit options available, including:
- The strategic buyer (trade or industry)
- A financial buyer (Private Equity)
- A management buy-out (MBO)
- Experienced High Net Worth Individual (HNWI)
Succession planning: where to start?
To ensure a successful succession, founders must:
- Identify the objectives relating to their future position in the business. For example, if the founder wants to retire and maintain a chairperson position on the board but has no family willing or able to continue the business, a management team will need to be appointed. Alternatively, if the founder wants to exit the business with a lump sum, they will need the counsel of specialists, like Isosceles, to manoeuvre the business into an attractive proposition.
- Conduct a thorough assessment of the current management team to establish whether they have the skills, attributes, and experience to take the business to the next level. For example, if a viable candidate for the position of CEO can be found internally, then the prospective CEO could spend time shadowing the founder to gain a comprehensive understanding of the requirements expected from the individual at the helm of the business.
- Articulate their vision to the new management team (if appointed) to ensure it aligns with the team’s long-term strategy for the business and their skills and capabilities.
Overall, the founder’s decision is based on several lifestyle factors; does the founder have an immediate need for cash? Do they need cash in the short term and regular instalments at pre-defined dates in the future? Does the founder want to maintain a link to the business by occupying a chairperson/consultant position on the board?
Depending on their answers to these pertinent questions, the path they must follow will inevitably vary.
How Isosceles can help
At Isosceles, our part-time FDs and interim FDs can work closely with founders and management teams, immediately start working on potential exit strategies and implement the processes, systems, and controls to ensure a smooth due diligence process.
From our decades of combined experience working with a range of clients across many industries, we understand that this process can often fill owners with trepidation. However, partnering with a trustworthy and reassuring specialist, like Isosceles, will make the process as stress-free as possible.