How to transition your business… “Succession” put another way
Most business owners (whatever the sector) have an aspiration that goes something like this:
- “One day I will sell this business, grab some cash, and go travel.”
- Or, “One day I’ll hand this business over to someone (my son/daughter, sibling, business partner, etc) to run for me – so I can sit back and watch the business keep growing.”
- Or, “One day, I will take time out of my busy life to enjoy the lifestyle I’ve worked so hard for – while somebody else runs the business for or with me”.
But the ‘aspiration’ is sometimes as far as it goes – because the basic foundations don’t get laid down to allow the aspirations to become a reality.
We’re talking about that word succession – which has all sorts of connotations. Most people when they hear “succession” think about keeping the business in the family – but that’s not the only way of looking at it. It’s actually more about the concept of the “transition” – how will the current business owner begin the process of stepping away from the business – when the time is right?
And depending on the amount of planning and forethought that goes into this – the chances of a successful transition vary dramatically.
3 x strategies for succession
There are three very varied strategies for succession we see:
1. Planned Owner Exit Strategy
This type of exit strategy means a well-planned approach is taken for the business owner to exit and walk away. The result is that a well-structured, self-managing business is left behind. The owner can continue to run it from a distance – or, an investor or new owner can come in and take over. The objective is to ‘groom the business’ to maximise the yield to the current business owner.
2. Proactive Succession
In this case, it is planned that a family or team member will take over the business. In the agribusiness sector, where intergenerational businesses are common, this is often the best possible outcome, but requires a proactive approach. Because of the extent to which family finances can be intertwined, legal and financial advice, plus the services of an outsider looking in to support the change process, will ensure the process goes smoothly. It is critical to leave adequate time for this to occur – and to be prepared to spend the time, money and effort necessary to achieve this outcome.
3. The ‘Hope for the Best’ Strategy.
Occurs where a crisis emerges and requires immediate reactive action, or where no real planning has been undertaken. This is by far the most stressful approach, and generally creates a situation where most parties lose. There can be considerable fallout, which inevitably requires significant financial and legal costs, as parties scramble for their share without taking a wider, more planned and proactive approach. Generally in retrospect, most parties feel aggrieved and particularly in the family situation, is often very difficult at a personal level for people to recover from such an experience. In our view, this strategy is to be avoided at all costs – as inevitably, just about everybody loses.
So why is succession such a challenge to get right?
It is generally ‘the intention’ of the business owner or senior management team to plan out their succession in a structured manner – to achieve either Option 1 or 2. Unfortunately, it is Option 3 that that you seem to hear about frequently.
After all, human nature is such that we avoid tackling the difficult tasks until forced to. Sometimes, there can be lots of conflicting thoughts and emotions attached to the process of “handing over” something that you have worked so hard to build up – and therefore decisions keep getting put off.
Or sometimes, business owners can get so caught up in getting the business to the point where it finally “ready” to start planning succession, that time has effectively run out.
So, the question we hear a great deal in the farming, grazing and agribusiness sectors is –“how do I take an orderly, structured and proactive approach to succession?”
So what are our “Top tips for succession success in your agribusiness”?
The succession process is often made far more complicated or daunting than necessary, because it’s not properly planned for. ABDI joins forces with Crowe Horwath partner Brett Collins in this webinar – to investigate “how best to take an orderly, structured and proactive approach to succession”…