How To Build The Best Business Succession Plan

To some, building a business is accompanied with a succession plan in mind.

To others, a succession plan is not something that is thought of during those early days.

And that’s fine.

After all, building a business contains many components so the end result is not always clear.

That said, as an accounting and finance team, we work closely with companies who are either going through the process or looking for guidance that will produce the best outcome.

So, today we are looking at succession planning and best practices.

Questions every business should ask

When it comes to succession planning there are a number of questions a business should ask themselves.

The first relates to the time period and when they are looking to sell.

Ideally, companies would want two to three years to work on a succession plan.

An important question to also ask is will the business be sold internally or externally.

Internally means selling to people inside the business. Whether that would be family members or current employees, that needs to be identified.

While both internal and external sale of the business can be good options, we find that selling the business internally typically produces a better result.

This is because people inside the business are likely to value it more.

If we for example take a personal asset such as a car.

If a person knows you as someone who looks after the car really well, they will value it more and likely pay more for it.

Is the business ready for a succession plan?

When it comes to selling a business, no matter who it is sold to, the owners need to make sure that everything is in place.

This includes processes and procedures, to insure the business can keep running.

That brings us to a crucial question. How much does the business rely on the owner?

This is a key factor to the succession plan.

If the business relies heavily on its owners it may make it harder to get a higher value on it.

That’s why it’s crucial that all the knowledge, processes and procedures are placed as general knowledge within the company.

If the business can run without the owner, that is a great sign.

At times, it may be hard for a business owner to answer that question.

So, to help answer it, we recommend business owners ask themselves the following: can the business run smoothly if I, the owner is away for four weeks?

If the answer is no, it indicates that the business will not be valued at the highest it could be.

When selling a business externally, at times it may be sold to another company that relies on the current services a business provides.  

We have seen that take place a few times over the years.

Either way, when it comes to building a succession plan we typically recommend a four hour time slot where we would dive deep in to a business and look over the details so we are able to assist in building a plan moving forward.

If your business is currently considering a succession plan or already in the process and you have any questions, reach out to us at Eventum Consulting. We would be honoured to help and guide you.