Succession planning is something that is done rather poorly in businesses across the country and perhaps the world. All to often, little or no preparation is performed. Arguably, succession is something that requires planning from day dot. However, getting to a desired retirement age, either willingly but without forethought, or through necessity, due to poor health and like, can gravely impact upon the realisable value of that person’s often prized asset and with few, if any, options.
Simply getting to a date and deciding you have had enough today or even six months ago is difficult unless you are prepared to turn off the lights and close the door behind you. Is it important to you that someone continues your business, your name? Do you need the financial gain from selling your business to support your retirement? Is someone willing to pay you something for your business? Is it worth anything? These are all important questions to consider.
When it comes to succession, there are a few options:
- Breed your own, i.e., family. Quite a long lead time, and depending on the industry, this may be more common than not, however when it comes to the professions, this is perhaps less frequent
- Sell internally to other owners and/or upcoming personnel
- Part internal, part external sale
- Complete external sale
So, depending on the planning, these options, along with others, are all on the table. However, also driving the options are the size and location of the firm. The larger the firm, the more restricted the market is for an outright market sale. Likewise, depending on the location of the firm, i.e., those more regionally based practices, this may also limit a marketplace sale.
Thus, for these firms, the ongoing exchange of equity into the future will require the development of a succession plan. All too often we hear that either staff don’t wish to purchase equity in a firm, often having not be asked, or that they are not partnership material, with the needed attributes, often having not be mentored or given the opportunity to grow into a partner. Let’s face it, few partners woke up one day and suddenly knew how to fulfill this role.
Hence, for those wanting internal succession, a couple of factors are key. Firstly, is the need for a longer-term succession plan. We work with a handful of great firms that have their longer-term succession constantly evolving. One firm in particular has a ten-year plan identifying when the current equity holders are expecting to sell down, or out, and also earmarking those successors that are expected to buy in the short terms as well as their possibilities in the long term. Thus, a plan can be shared with all those aspiring to be future leaders and equity holders showing the path that this process takes. Additionally, the firm can recruit with this need in mind.
The second aspect to that plan is sharing what key factors and circumstances are required amongst these successors, and the firm, to be provided with such opportunities. What skills, attributes, experience do they need to personally exhibit to be extended that opportunity? What performance is required by the firm?
Once these performance expectations are shared, the next and perhaps most important step is required, and this is personally mentoring and skilling up your future successors to meet those expectations. Let’s face it, it’s very difficult for someone to change, to improve, to meet expectations, if they are not aware of what is expected and then perhaps guided towards becoming that suitable person. It is also important to appreciate that not everyone will or needs to have the same skill sets and attributes. A team requires varied strengths. Some will naturally be better than others at certain things. So, it’s also important to be realistic about what you are needing and wanting to build in your successors. Some will naturally be more technical, whilst others will be great business developers, it’s often difficult to be both.
However, with supposedly around half of the current owners of accounting firms seeking to retire in the next three, five or more years, time is of the essence. Please get planning.