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Devon Life Business & Professional - Planning for Succession

PUBLISHED: 11:03 22 March 2013 | UPDATED: 21:16 05 April 2013

Devon Life Business & Professional - Planning for Succession

Devon Life Business & Professional - Planning for Succession

Peter Blatchford, Executive Director for Coutts in Exeter, offers advice for entrepreneurs looking to put succession plans in place


Planning for succession

Planning for succession



Peter Blatchford, Executive Director for Coutts in Exeter, offers advice for entrepreneurs looking to put succession plans in place


Question
I am the owner of a successful business and I want to secure its future by passing it on to a worthy management team, and to make sure I see the benefit of my years of hard work. What should I be considering and what plans should I put in place?


Answer
For an entrepreneur, the sale of a business is often a once-in-a-lifetime opportunity to acquire real wealth after years of hard work.


A management buy-out (MBO) is an option that only a minority of entrepreneurs (19% according to Coutts research) are prepared to consider despite its potential to be both effective and lucrative.


There are compelling reasons for selling your business to an incumbent management team. MBOs may deliver less money upfront, but they offer more long term value; the entrepreneur has scope to leave money in the business while also preserving their legacy.


A capable group of managers will be ideally placed to take the company forward - after all, they know the business, theyve helped make it what it is and they will be intimately familiar with the market and customers.


An owner should begin paying attention to succession issues as soon as (or better still, well before) a decision is made to sell the business. For a business to have value, the owner must make a decision to nurture the management talent that will allow the company to trade successfully post-exit while taking a step back from the day to day running of the business.


Many entrepreneurs see MBOs as a clean break; in contrast to a trade sale where the owner is often required to be present during a period of transition, the MBO typically sees the seller leaving the business on completion.


Alternatively, if youre in a family business, you may wish to prepare the younger members of the family for being responsible owners and managers, rather than selling the business.


It is valuable to spend time with the younger members of the family so they have the opportunity to learn about the business and how to operate as a family partnership.


A bespoke programme could be developed, to teach the next generation about the business and what responsibilities ownership and wealth brings. This might include having different stakeholders present to them - such as board members, employees, customers and a mix of professional advisers - to help broaden their understanding and awareness.


It is a sad reality that just 13% of family businesses make it to the third generation*. Succession is one of the biggest challenges faced by any family business and it is important to separate ownership succession from management succession.


*John Wards (1987) seminal study on family firm succession.


For more information about becoming a Coutts client in Devon or Cornwall, contact Peter Blatchford, Executive Director, Coutts Exeter, on peter.blatchford@coutts.com or call 01392 311966. Calls may be recorded.


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