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Why a solid succession plan ensures financial stability

Many subcontracting firms and smaller professional services practices are often led by just one director. The more established the business is, the more difficult it is to imagine it being run any differently.

However, life is unpredictable and there may come a time when the head of the company no longer wants or is able to lead it.

It is therefore important that all businesses have solid succession plans in place to safeguard employees, ensure it is attractive to new owners and can continue to function.

Securing the business for future growth

Ensuring a succession plan is in place will inevitably save time and money when it has to be implemented. Evaluating the talent in the workforce regularly can help to earmark future leaders.

“There must be focus on intellectual capital to ensure that financial viability remains”

Looking for strengths in the team can also uncover the weaknesses the business must work on to secure its future financial growth. The weaknesses in process or people can then be addressed before it becomes critical.

Plans to promote and train people within the company means less time needs to be spent recruiting external candidates, interviewing them, checking their references and paying recruitment consultant fees.

A changing organisation must have the right calibre of personnel capital placed on crucial positions to ensure continuity of operations or it will cease to be a going concern. There must be focus on intellectual capital to ensure financial viability remains.

Financing a purchase

In terms of valuing the business, there is no precise science to this. Whatever methods are adopted, ultimately the valuation is that which a willing purchaser is prepared to pay the business owner.

The most critical issue is then understanding the balance between the price the seller wishes to achieve on giving up ownership of the business and the price the purchaser puts on the opportunity to exploit the business.

“Though new owners may wish to make changes to the management, proving the business can continue to run while leadership is in flux is invaluable”

It is here where a succession plan is vital. Though new owners may wish to make changes to the management, proving the business can continue to run while leadership is in flux is invaluable.

Although the finance of the purchase is usually the buyer’s concern, there may be times when the business owner may need to help the buyer obtain the finance. This is most common when selling to a family member, co-owners or employees.

The finance used to secure the deal could include mortgages, sale and leaseback arrangements or long-term buy-back arrangements. Most finance arrangements can be complicated and all will require both legal and tax advice.

Like a kind of insurance, it is best to invest fully in succession planning now in order to protect your business, yourself and your employees from whatever the future may hold.

Peter Vinden is managing director of The Vinden Partnership

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