Would Your Business Exit Strategy Gain The Royal Seal Of Approval?

Succession planning is an important part of every business, even when you’re in the ‘business’ of running an entire empire. The British royal family is an entity that needs to ensure continuity, just like any successful business, and as one of the longest standing entities in the world there are many succession planning tips that can be gleaned from their succession hiccups and subsequent strengths.

Consider one of the most famous royal succession dilemmas – the abdication of King Edward VIII in 1936. King Edward’s lifestyle decision to leave the family business left his brother Albert to step up with short notice to become King George VI.  Without a clear succession path already in place, and a suitably trained candidate waiting in the wings, the sudden change in the line of succession could have been a disaster.

The plight of the British Royals could have again been compromised when King George’s rein was ended by his sudden death.  His daughter, Elizabeth II, was forced to automatically assume the helm at the young age of 26.  A daunting task by anyone’s measure, especially for one so young.  However, the impeccable preparation helped to overcome a difficult and potentially unsuccessful situation, and produced instead, what is not only the second longest serving royal in history, but arguably the most successful monarch ever.

Such an exemplary track record was developed over time as a result of many instances of meandering succession. Back-up plans and specific succession strategies for the royal family eventually evolved and are now solidly in place. Instead of assuming succession will go to plan, they identify a second, third, fourth all the way down to 54th in line for the throne!

All those in the succession line have an understanding of their responsibility and the protocols of the business they are in, which maximizes continuity despite death, disability or any other unexpected events. No argument can change who will succeed because the details are well documented in the British Constitution – which contains the royal equivalent of a formal, written succession plan.

In addition to a written plan, the royal family also has the Parliamentary Statute, which essentially acts as a ‘board’ to make fair decisions about succession problems if and when required.  The Statute has the power to deprive Sovereigns of their title due to misgovernment. It came into existence in 1868, when intervention by the government became necessary after King James II fled England, leaving the throne vacant. Parliament ruled that he had abdicated, and so they offered the position to James’s daughter and her husband as joint rulers.

How To Plan Your Business Succession Like A Royal

The lessons learned by the British royal family throughout history provide an excellent guide to the key elements required for your business succession planning success:

• Identify potential successors. The British parliament and the royal family would not allow just anyone to take over the throne.  Similarly, most business owners feel strongly about the kind of person they believe can successfully continue their organisation in the future.

Think about who the most likely candidates to take over and buy your business might be. Often the most suitable candidates are people already known to your business. They may be internal, such as co-owners or staff, or even external competitors or suppliers.

Are there special attributes or qualifications that potential new owners must have? This may include legal, financial, licensing or educational factors. Early identification of candidates for succession  allows ample time for the necessary training and personal preparation so the successor is ready to take the ‘throne’ when the time comes.

• Recognize that family ties aren’t enough to ensure successful succession. Family members in business often make verbal agreements because they share a presumed relationship of trust. Many business owners have fallen on hard times because they believed their relationship with other parties ensured the agreement would be honored in the manner intended.

The problem with verbal agreements amongst family members is that circumstances can change; people’s recollections become blurred over time and misunderstandings result not only in relationship breakdown, but also in business breakdown, often with devastating consequences for all concerned.

• Communicate the process clearly so that everyone involved understands what is expected. This is important because too often in business insufficient thought is put into who will step up to fill management roles.

Assumptions are sometimes made without consultation or discussion with the individuals concerned. How to divide a business in a family situation, for example, can be one of the hardest decisions of all, particularly if the main asset you hold is your business and you have one or more children competing to eventually take control. If business continuity and an amicable outcome in terms of maintaining the quality of your relationships are important to you, a wise strategy is to communicate your intentions to all those involved, and to gain feedback and acceptance from the main stakeholders.

If you fail to do this you can be fairly confident that you will reap disaster in terms of financial disappointment and relationship breakdown.

• Document the legal process. The British Constitution wasn’t created in a day and it certainly wasn’t the work of one individual. Your accountant, lawyer and financial adviser need to work together to ensure your succession plan documents are in order to ensure a smooth and profitable succession.

One of the biggest mistakes made by owners is to assume that the business’s existing Shareholder Agreement or their personal estate plan is sufficient to handle the succession process. Depending on the strategy you choose, you may require any number of legal documents to ensure a smooth succession plus maximum cash flow and profit.

These may include a buy-sell agreement, which gives the first right of buy-out to a given party, or an Employee Share Ownership Plan (ESOP) which may be implemented to allow key employees to join in ownership of the company. ESOPs are already widely used globally and are increasingly being used more in Australia to ensure that successors are financially prepared to fund the buy-out.

• Prepare for contingencies because in real life things don’t always go to plan. Royal, or not, individuals change their mind, act unpredictably, sometimes irresponsibly and have their own passions and motivations.

Disputes, death, disability and divorce are also factors that can disrupt a business’s operations. Planning for all the positives is a good idea, but overlooking possible problems you may face isn’t realistic and doesn’t allow you to mitigate potential issues and create a more certain outcome.

• Appoint a mini board. Just like the Parliamentary Statute in place to oversee British Royal family operations, you can appoint a board to assist with decision making when required. A board may allow you to draw upon knowledge and experience that is not available within your business, and can benefit you by providing arms-length impartiality, fairness and accountability to your succession planning that may not be achievable on your own.

Many small to medium business owners believe that their size prevents them from having a board, but this isn’t the case. Even small businesses can benefit from having a ‘mini-board’ to ensure some degree of impartiality when it comes to making business decisions, especially surrounding what can be emotionally charged succession planning issues.

The succession strategies responsible for the longevity of the British royal firm offer clear evidence that these factors form the basis for assured long-term continuity, and that using these principles can allow your business legacy to live on, long into the future.

To Your Proftable Business Exit,
Leigh Riley

Leigh Riley is the author of the first book of Australian case studies on succession planning, ‘Your Business Succession’, providing  strategic, tactical, practical and educational support for business owners who want to exit their business with maximum cash flow and profits.

More information and free book chapters are available at Your Business Succession blog

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How Is The Credit Crunch Affecting The Sale Of Your Business?

Who would have thought that a credit crunch originating in the USA would affect your ability to exit your business profitably in another country? Yet that is exactly what can happen if you are planning to sell your business without proper preparation in the form of a holistic business plan.

Despite the best efforts of governments around the world to free up credit markets, access to credit is still tight, with financial institutions carefully scrutinizing small business access to funding and therefore limiting the pool of potential buyers for your business.

If you’re a business owner who is planning to sell your business in the near future, the chances are that your ability to sell at the price you want and deserve will be directly affected by the your buyer’s capacity to obtain finance to fund the purchase.

Financial institutions are reported to be lending on business acquisitions right now, however only those businesses with proven financial viability and profitability, together with strong asset backing, will be in the running for loan approvals.  This presents a succession problem for you as a business seller who desires to exit your business in the near future.

To overcome this dilemma you want to prepare your business exit thoroughly and cover all options to ensure your sale can proceed in your timing and on your terms.  In my book ‘Your Business Succession’ due for release on 31st January 2010, I detail literally dozens of strategies to help you avoid or overcome business succession problems, and below I offer 7 strategies to help you prepare to sell your business profitably regardless of a credit crunch.

7 Strategies To Prepare Your Business For Sale In A Credit Crunch

1.  Assemble a reliable set of financial statements, prepared by your Certified Practicing Accountant, to  substantiate at least 3 years of your business performance.

2.  Increase your business cash flow with a reliable income stream.  This may mean formalizing service agreements with your customers or introducing product or service lines to increase business income.  It may also mean reviewing the pricing of the products and services you already provide.

3. Examine your business expenses and cut costs wherever possible.  Financial institutions will be looking for proven lean operations before providing funding to a potential buyer of your business.

4. Consider Vendor Finance options that enable you to facilitate the sale with potential buyers. Remember this effectively means you will become the banker on the sale, so you need to protect your interests with assets, insurance and a legal agreement.

5. Don’t forget to consider staff within your business as potential buyers. They’re in the best position to appreciate and understand the value of your business and are usually more prepared to pay the price you’re asking.  Think about arranging an Employee Share Ownership Plan (ESOP) to facilitate a buyout by your best staff.

6. Prepare a feasibility study of the future prospects and potential of your business and target market to impress financiers and save your buyers the trouble.  As the business owner, you’re in the best position to describe your competitive advantage and can best present the value that your business offers to future owners.

7. If you haven’t had time to implement the above recommendations, consider delaying selling until you can prepare adequately. If you want the best price for your business sale, forward planning in the form of a holistic succession plan is essential to ensure your business is operating at optimal profitability.

How prepared are you to sell your business for maximum cash flow and profit?

Invest just 3 minutes of your time to complete the online assessment and receive your FREE customized report with an instant explanation and “To Do List” to complete your Business Exit and Succession Plan at http://ybsProfits.com/quiz.php

To Your Profitable Business Succession,
Leigh Riley