It takes courage to be an entrepreneur. Starting a new business involves huge personal, emotional and financial investment. The energy and ability to do 3 full time jobs is critical to making the business a success. The perseverance and commitment to keep going in the trickier times is essential and an optimistic long term outlook for the business is required as there may be no short term financial rewards.
An entrepreneur spends a lifetime creating and nurturing a business and their place in it. They are central to business continuity and success. Effective succession planning involves the opposite: making themselves voluntarily redundant to allow the next generation of owners and leaders to take over and continue the legacy that the entrepreneur has created. No wonder many business founders find it difficult to plan for continuity. Perhaps the most courageous thing an entrepreneur will do in their career is to recognise when it is time to let go and make it happen.
There are a number of strategies that can help entrepreneurs and their businesses prepare for letting go. Here are our top 5.
Speaking to other entrepreneurs who have been through the process of letting go will help with the personal and emotional work to be done to get ready. Preparing to write yourself out of the script in your own business is an enormous task. It is natural for founders feel a loss of personal identity, and even wrestle with personal mortality, as life has been so focused on the business over many years and the daily rhythm and routine has centred around work. Taking time to think and talk about what the next chapter will be like, makes a new life outside of the business feel more tangible and less of a step into the unknown.
How will your aspirations for continuation of the business be fulfilled? There are a number of succession options available to private businesses in the UK and it is important to find the correct one for you and your business. You will usually explore two succession challenges – ownership succession and leadership succession. Until now ownership and leadership may have been concentrated in the entrepreneur as an owner manager and as part of planning your exit, these have to be looked at separately. Considering the following options may help clarify your thinking.
Using a mix of these options is also possible. For example, the family could retain a minority shareholding and perhaps some family members continue to work in the business going forward, the management team may also own a stake in the business, but the majority of the shares are held for the benefit of the employees as a whole.
As someone who has always been the leader it’s humbling to think that anyone can do the job as well as you have. But remember that your successors are starting at a very different point in the business lifecycle. The business is now mature with management systems in place, a stable client base and a work force that knows the business and understands the values that are intrinsic to how the business does what it does. So, your successor(s) are not doing your job; they are doing a different job that may require different skills and experience.
When you run a business, you have control of your personal cash flow and the moment you leave, that stops. So, before you exit the business, you need to have a strong idea of what your life looks like financially when you are no longer involved. It is important to consider how much value you need from the business to be financially secure in the next stage of your life. Perhaps you require enough for a comfortable retirement or are you going to set up a new venture or invest in someone else’s?
You may also want to think about how and when you will receive your cash from the business. Would you prefer to receive your cash in a lump sum or are you happy to receive payments over a number of months or years? Will you retain some shares in the business and receive dividend income? Maybe you will continue to have a role in the business for a period and receive a salary?
The important thing is to take some time to ensure that you will be financially secure independent of the business in the future.
When the work on the personal aspects of succession has been done, it is time to create a plan and discuss it with those who will be affected by the change. The greater number of stakeholders involved in the succession planning process, the more likely it is to succeed. Preparing the business for the change by ensuring there is a strong management team ready to take over from the founder and identifying any skills gaps early is important. Informing employees, customers, suppliers and other stakeholders that a transition in ownership in leadership is coming will enable everyone to prepare for the change. When you have decided on a timeline for handing over ownership and leadership of the business it is essential that you stick to it.
Then it’s time to have faith that your succession plan is a good one and let the preparation pay off. Be proud of what you have achieved in the business and that your planning will enable the business and its unique culture and way of doing business to continue when you are no longer there.
For more information on succession options, contact Baxendale’s legal manager, Louise Fisher. Reach me at firstname.lastname@example.org