Succession planning and transferring your business

 

 

Succession planning

Preparing to concede ownership of a business can be tough for owner managers, but getting it right is crucial if the business is to remain successful.  It will come as no real surprised that early planning is key yet in my experience most ignore it until, for some particular reason, it becomes a pressing issue.

Succession planning involves transferring ownership and control of a business to new management. The three main options are: (a) transferring ownership to a family member; (b) transferring ownership to a non-family member; or (c) disposing of the business through a sale, management buy-out, management buy-in or voluntary liquidation.

Why succession planning is important

The UK has 4.8 million family businesses which is 88% of all the businesses in the UK and I would guess that the majority of first-generation family businesses have no succession plan.

The most common reasons include resistance by the owner to let go control, fear or retirement or inability to find or choose a successor.

Handing over ownership is highly emotional and can be complicated which is another reason why it is left until it becomes a top priority.

Know what can be at stake

Leaving succession planning until it is too late is likely to mean that a successful transfer of ownership is not possible with the required time-table.  When the decision is forced by events a panic decision or an ill informed one can mean that the business is transferred into reluctant and or inexperienced or even incapable hands.

Business disruption can easily take place in this context as arguments arise over who owns what or who runs which part and this kind of disruption and uncertainty can have a negative effect on sales and employee morale.

If this goes on for too long it can lead to business failure and a family fued.

So, as I said in my introduction, it will come as no surprise that setting aside time to think clearly and unhurriedly in advance and then crafting a succession plan is the key to successful succession.

Identify and assess your options

As mentioned earlier you could decide to transfer ownership of the business to a family or non-family member.  You might sell the business or dispose of it through a management buy-out or management buy-in.  In fact, you might decide the best course of action is to wind up the business altogether by means of voluntary liquidation.

Factors that should guide your decision

Begin by considering whether there is an obvious choice of successor within the business.  This could be a family or non-family member who has worked for you for some time, someone who knows the business well and who has the necessary skills to take control.

Identifying the right person to take over the running of your business can be a difficult decision.  Much is at stake and you need to be absolutely certain your chosen candidate is capable of taking your business forward.

If an internal appointment is not possible, you might have to opt for an external appointment. However, if you need to generate funds for your retirement, a sale might be your only course of action.

Keeping it in the family

Choosing a family member as a successor is a popular option for many owner-managers – especially when the person already works within the business.

Family succession provides a feeling that the business has been left in the hands of someone who is committed and who will do all they can to bring continued success.

Making your choice

When considering who is best equipped to take the business forward it is crucial that you remain objective.  Be guided by the needs of the business, not emotional considerations or which family member has the greatest influence on you.

When considering potential successors look for evidence of commitment.  Assess skills and experience carefully, because the person you choose needs to have what it takes.  Consider also whether they have the necessary leadership skills and personality to motivate and manage others.

Preparing for succession

Once you have chosen the person most suited to succeed you and they are open and willing to take the helm, start preparing them through education (informal and formal if necessary), a range of training and close mentoring.

Set a timetable for the transfer of power and ownership and use the time you have left to give them the benefit of your knowledge and experience.  To test their readiness, you can begin to lessen your involvement and give your successor responsibility for making some important decisions.

Give them the necessary time to equip themselves with the skills and knowledge they need, otherwise you will be setting them up to fail.

Non family member

Transferring ownership and control of your business to a family member might not be possible or feasible.

After careful consideration you might conclude that a non-family member– a current employee, someone who knows the business and is committed – is best placed to take the business forward.

If such a person does not exist, you might be forced to bring someone in from the outside.  Be careful.  Such an appointment can cause resentment.  To minimise the risk of problems arising, communicate the reasons for their appointment to your staff and make it clear that it’s in the best interests of the business.

Trust is the major issue if control of your business is given to an external person.  You will need to be sure about their skills and experience because the person you choose should have what it takes.  As well as knowledge of your firm and type of business, they will need the necessary leadership skills and personality to motivate and manage others within your business.  You will also need to be sure of their commitment.

A Trade sale

Disposal (selling the business) is, in my opinion, the best option if there is a need to raise cash (perhaps to fund retirement), an absence of a natural successor or the family has no vision or desire to continue its involvement in the business.

I’m fully aware that deciding to sell can be tough for owner-managers who can feel reluctant to let go of a business they have nurtured for years and see it as their life’s work.  Again appropriate preparation will help to lower fears and concerns, until you are certain have found the right buyer.

Preparing to sell your business

It actually can take several years to get to the stage where a business is ready for sale.  If you decide disposal is the most appropriate option, then you need to establish a plan, time line and some objectives for preparing the business for sale.

To ensure your business is in the best shape to command a competitive offer, you should consider seeking guidance from an experienced corporate finance advisor or business broker.

Ideally before being in a position to sell, you need to make sure your business is as lean, efficient and as profitable as possible.  Clear evidence of sales growth via honest projections will truly help to maximise its appeal.  There should be no black holes or major issues which could jeopardise the sale, such as a legal action or a tax investigation.

The key options

Management buy-outs (MBO) are becoming increasingly popular with younger family businesses. Transferring control of the business to a management team from within that already has knowledge of the company provides numerous advantages.  It also gives the owner-manager the chance to transfer ownership to people who are already committed possess knowledge and relevant experience and who already have a stake in the business’ continued success.

Management buy-ins (MBI) occur when an external management team joins the business and takes a stake in its equity.

Voluntary liquidation

Voluntary liquidation involves dissolving all of a company’s assets, paying off employees in accordance with the Act respecting labour standards and closing the business down.

It is usually only considered when all other options have failed (e.g. when no one is interested in buying the business or taking over its management).

There can be quite substantial expenses involved, and so voluntary liquidation is unlikely to provide the best returns for business owners who are looking to raise cash.

Above all else put in place a formal succession plan

Any succession plan is of no use if it exists only in your mind.

Having to formalise your succession plan enables you to know exactly what course of action you plan to take, when and how.  Setting it out in black and white often means gaps and weaknesses are exposed, which means more effective strategies need to be employed to get it succession ready.

Once you have decided which course of action best enables you to relinquish control of your business in the manner you want, you should be able to work out a timetable of necessary actions. This needs incredible attention to detail both in planning and executing.

In my experience a succession plan can take several years to implement and it can take longer that you think if your approach is to build the plane as you fly it.

Getting support

Your succession plan needs to be communicated effectively to other important people within your business.  Letting staff, customers and suppliers know of your intention to cease involvement in the business is important – and timing is crucial.  The last thing you need is people to lose faith in the business when they hear you will no longer be involved.

Throughout, it is important to seek expert advice on every aspect of relinquishing ownership of your business – not least of which is taxation.  There will be implications for both your personal finances and those of the business.

One of the toughest challenges that business owners face is learning to slowly let go in advance of actually relinquishing control over their businesses.  However difficult, it is a necessary part of the process.

 

Tom Bathgate MBA
Broadthunder Limited
162 Walkden Road
Worsley
Manchester
M28 7DP

5 Phases of Growth and Development in every business

The idea of a similarity between an organisation and a living organism goes way back.

From as early as 1890 an economist by the name of Alfred Marshall compared companies with trees in the forest in terms of their development.  Decades later others compared the life cycle of an organisation to the same life cycle as a living organism – birth, growth, decline and death.  Amazingly for 120 years research has been carried out on the life cycle of organisations coming up with an impressive variety of analysis.

In the 1970’s Larry Greiner, an Associate Professor of Organisational Behaviour at the Harvard Business School, added a perspective to the development of a company.  He said that a company’s past has clues for management that are critical to future success.  I studied his material while doing my MBA at Management School and it left a lasting impression on me.

Greiner maintained that a company that is growing will move through 5 distinguishable and predictable phases of development each of which contains a relatively calm period of growth that ends with a management crisis.

He argues that since each phase is strongly influenced by the previous one, management with a sense of its firm’s history can anticipate and prepare for the next developmental crisis.  As a consequence he believed that management can prepare to turn a crisis into an opportunity for growth and development.

According to Larry G the 5 phases of growth in an organisation are indicated by an ‘evolutionary’ and subsequently a ‘revolutionary’ phase.

By ‘evolution‘ he was referring to an extended period of expansion with little or no significant disruptions.  By a ‘revolution‘ phase he was referring to a period of considerable disturbance within a company.

It is this theory on which he bases his view that historical forces do indeed shape the future growth of organisations.  He thinks that many clues to a company’s future success lie within their own company and their evolving states of development.

In addition he also thinks that the inability of management to understand its own firms development problems can result in a firm becoming “frozen” in its present stage of evolution or ultimately in failure.

Larry G argues that each evolutionary period is characterised by a dominant management style used to achieve growth, while each revolutionary period is characterised by the dominant management problem that must be solved before growth can continue.

His big play is that the future of a company may be less determined by outside forces than it is by the organisations history.  He based this on what he has drawn from the legacies of European psychologists – their thesis being that individual behaviour is determined primarily by previous events and experiences, not by what lies ahead.

Unpacking this analogy of individual development to the problems of organisational development leads him to describe a series of developmental phases through which growing companies tend to pass.

The table below outlines his 5 Phases:

5 Phases Evolution Revolution
Phase 1 Growth through creativity Crisis of leadership
Phase 2 Growth through direction Crisis of autonomy
Phase 3 Growth through delegation Crisis of control
Phase 4 Growth through coordination Crisis of red tape
Phase 5 Growth through collaboration Crisis of ?

Below is a an exhibit from his paper which illustrates the above table:

He also exhibits (see below) an overview of organisational practices during evolution in the 5 phases of growth:

I know that all this business theory from management schools can turn people off rather than switch them on.  I get that.  However, there is something in this study that resonates with my experience of the businesses I’ve either been a part of or had the privilege of advising.  Businesses do have periods of evolution followed by revolution – check out your own.  You can see from practices illustrated above a mirror on so many owner managed businesses.  Check out focus, structure, management style as it’s outlined above and compare and contrast it with your own business and current management style.

Anyway, this is just meant to be a thought shaker and help us in gaining a fresh perspective on our business.  It’s not meant to be a full blooded outline of Larry G’s theory of growth and development.

Perspective is everything.  Check out Julian Beever’s 3D Pavement Drawings below to ‘see’.  I hope this short thought shaker might be a little bit like Julian Beever’s amazing 3D drawings – arresting, altering and shifts your thinking for a moment:

Perhaps your perspective on the 5 phases just might shift a little!

Tom Bathgate MBA

Minimum Contributions Increase On 6th April

Employer Duties Regarding Workplace Pensions in the New Tax Year

By law, the total minimum contributions you must pay into your staff’s workplace pension schemes increase on 6 April 2019.

You do need to be ready for this increase, to make sure you are paying the correct amounts into your staff’s schemes.

Are You Ready?

From 6 April, the total minimum contribution including employer and employee payments must be no less than 8% of qualifying earnings.

Employers must pay a minimum of 3%, with employees making up the rest of the 8%.

You can choose to pay more than their 3% minimum contribution if you wish. If you do, employees won’t need to pay in as much to meet the total minimum contribution of 8% of qualifying earnings.

Date effective Total minimum contribution Employer minimum contribution Staff contribute the remainder

Current rates

5% 2%

Up to 3%

6 April 2019 8% 3% Up to 5%

Next steps

– It should be simple for the new rates to be applied, particularly if you use our   payroll service as our payroll software service providers have made sure their systems are ready

– We recommend that employers write to their staff to let them know about the increase in contributions – letter templates are available from The Pensions Regulator website.

If you are unsure call us on 0161 703 8353 and ask for Christine McCarthy.

If you would like us to do your payroll for you please get in touch with Christine McCarthy on: christine.mccarthy@jeffreyahuddart.co.uk

If you would like to write to us with your questions and any concerns drop us an email on: hello@jeffreyahuddart.co.uk

 

 

Tom Bathgate MBA

 

 

Your Breakthrough Move To Making Tax Digital

Making Tax Digital (MTD) is one of the biggest shake ups since the introduction of Self-Assessment in the 1990s in terms of how businesses MUST interact with HMRC.

In a nutshell MTD mandates that businesses will HAVE to use some form of compatible, functional, DIGITAL tool to SUBMIT financial information TO HMRC on a regular basis.

In Just 7 Days we will all be in a new tax year and ‘Oh My God’ I read recently that apparently less than 10% of companies in the North West are MTD ready.

I’ll get right to the point. First to be impacted are VAT registered businesses that have turnover ABOVE the VAT registration threshold currently of £85,000 and commences for VAT periods starting on or after 1 April 2019.

So unless you already really know what you are doing with your VAT returns and are most definitely using accounting software which is MTD ready and fired up, YOU Need a Breakthrough Move to get your business ready for a pain free way of getting your VAT returns immediately MTD compliant and here’s the quick and easy way to do just that:

1  Call Us Now on 0161 703 8353 and ask for Andrea Parr or Charles Lucas or

2  Email Us Now on hello@jeffreyahuddart.co.uk

As soon as we hear from you can expect us to advise you on how you can get ready, what accounting software is MTD ready, and how we can help make it all happen.

PS: don’t risk being late with your VAT returns this new tax year

Tom Bathgate MBA

SumUP – we can now accept credit card payments

I’m pleased to announce that following a number of requests from clients we are now able (at our office) to accept credit card payments should clients wish to pay this way.

Below is a picture of the card machine we are using:

SumUp are a leading mobile point-of-sale (mPOS) company in Europe. They say this about themselves on their website:

“We started out 6 years ago and built our payment service from scratch to shake up the industry and wake up the entrepreneur within anyone. We created a unique device that with the smartphone that’s in your pocket, allows small merchants to accept card payments anywhere.

Whether our merchants are brewing coffee or fixing cars, we want to make technology that anyone can use – so our merchants can get on with what they do best. From our paperless onboarding to taking the first payment, we make it easy. Traditional offerings leave out small businesses, we don’t. We are open and honest about our pricing and have no hidden fees.

Launched in August 2012, our company enjoys impressive global reach and has since expanded into 31 countries, including Germany, the U.S. and Brazil. SumUp continues to grow and is backed by American Express, BBVA, Groupon, Holtzbrinck Ventures and other renowned venture capital investors.

Today, hundreds of thousands of small businesses around the world rely on SumUp to get paid. Beyond our original hardware, mobile and web apps, we have gone on to develop a suite of APIs and SDKs for integrating SumUp payment into other apps and services.”

If you are thinking about possibly using one for your business then some Key points to be aware of are:

No fixed costs

Only pay 1.69% per transaction. Payouts go directly into your bank account.

Accept all debit & credit cards

Connects via Bluetooth. Compatible with iOS / Android smartphones and tablets.

Signup in 5 minutes

100% online. No fixed contract. No paperwork.

Check out their website by clicking on the link below:

https://sumup.co.uk/

Tom Bathgate MBA
Broadthunder Accounting Limited