By Matt Storey, Partner
One of the biggest mistakes that business owners make is thinking that they do not need to think about business succession.
This might be because they are just starting out in business or have been going a while with no plans to stop.
Business succession is not just for those eyeing the door and it is worth understanding the key role it can play in commercial finance.
What is the connection between business succession and commercial finance?
It is never too early to consider the form of business succession that appeals to you and you are by no means locked into a single strategy.
Instead, thinking long-term about business succession allows you to increase and preserve the value of your business when the time comes to exit and gives you greater clarity when approaching commercial finance.
For instance, settling outstanding debts is going to be more beneficial if you are seeking external buyers who will need convincing of your business’s value, while focusing on rewarding employees could prepare them for assuming control one day.
What business succession strategies are there?
To know what your business succession strategy will look like, it is best to determine what you want the business to be after you have gone.
If it is a sentimental venture, then you may want to keep it in the family.
This will involve preparing a relative to take control once you have exited.
Be mindful that this may be seen as nepotism and unsettle managers and employees if not handled effectively.
As such, you should work to slowly educate your heir on how to handle the business before they are in charge of it.
If company culture is more of interest to you, then you should consider a Management Buyout (MBO) or an Employee Ownership Trust (EOT).
An MBO involves the management team buying the company and running it among themselves, while an EOT spreads ownership across a wider range of employees.
To prepare for these, you could ensure that more of your commercial finance rewards the work that these people do, so that they are in a better position to buy the company one day.
This will also encourage them to care more about the business and take greater care once they are in control.
There is always an option to sell to an external party, which is when clear commercial finance is vital.
To get the most out of a sale, you need to have clear financial records and be able to demonstrate that the business is in good health.
Audits can help with this, but a proven track record of smart economic decisions can also show that the business is capable of going from strength to strength.
If you are selling the business, consider whether you would think it a good deal if you had no prior knowledge of the operations.
Our expert team can assist you with this and help align your commercial finance and succession strategies.
Do not risk your hard work being let down by poor succession planning. Speak to our team today!