According to the latest Global Entrepreneurship Monitor, 7% of 50 to 64-year-olds in the UK are now starting a business for the first time.
Some of these budding entrepreneurs may be considering retirement or reducing their responsibilities in the next 10 to 15 years. Even though initially they will undoubtedly focus on the most immediate needs of a new business – securing funding, product development, customer service and managing employees – an exit strategy should also be an integral part of any business plan for two key reasons.
Firstly, a business owner who announces their impending retirement doesn’t want to face the prospect of having no successor. And secondly, a deterioration in the owner’s health may make it essential for responsibilities to be transferred to someone else. If there is a plan already in place to mitigate the effects of these changes, they may not be as disruptive to the business. Here’s how to plan an exit strategy:
Plan ahead
It is important to have a plan from the beginning that outlines your preferred exit strategy. There are a host of options available for business owners to consider but if the preferred option is retirement with a well-managed succession, then several questions could arise such as:
- Is there still a role for the owner in the company’s future operations?
- What impact will a senior management change have on business structure?
- How will the departure affect employees, suppliers and customers?
- Will the business change location, or even its name?
All of these questions should be considered, so that any risks and fears can be mitigated.
Choose your successor
It is tempting to maintain secrecy when deciding who the chosen successor will be, but support and buy-in is needed from those affected by the outcome. Observe potential successors and evaluate if they could be the next leader.
If there is not an obvious successor, then developing the senior team could help to identify one. Interviewing all candidates is important as it will help to ascertain those that are (and those that are not) willing to run the business in the future.
Retain good managers
Having identified potential successors, it is imperative to retain those key staff as they will contribute to business success and take it forward when the owner wants to take a step back – or out. By incorporating financial incentives, such as employee share schemes into the plan, you can encourage key managers to stay and grow the business, with the promise of a share in its success.
Train your successor and senior team
Alongside retaining talented staff, it is important to build up the next leader and the senior team so that the owner’s departure (planned or otherwise) doesn’t have a negative effect on the company. Knowing the team can handle the business in the event of an illness or other absence is reassuring.
A strong management team is not only appealing to future buyers, but may also raise the possibility of a management buyout. However, owners should also ensure they protect their business by ensuring suitable restrictions are placed on those managers, so that they cannot poach customers and staff if they become impatient to assume control.
Manage the risk
It is essential to plan for the possibility that the business owner could pass away or become incapacitated before implementing the devised exit strategy.
Business owners should ensure that they have a power of attorney and made a will, which identifies what should happen to the business and their shareholding in these circumstances. They must also ensure that someone knows where these documents are located and what insurance they or the company have put in place, to keep the business on track.
Jo Davis, partner, employment team, B P Collins LLP
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